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Peter Biantes | Wattle Health Australia

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WATTLE HEALTH AUSTRALIA LIMITED
REPLACEMENT
PROSPECTUS
THIS IS A REPLACEMENT PROSPECTUS
DATED 1 FEBRUARY 2017. IT REPLACES...
OFFER
The Offer contained in this Prospectus is an
invitation to acquire fully paid ordinary shares
(Shares) in Wattle Hea...
Wattle Health Australia Limited Replacement Prospectus 1
Important Notices IFC
Key Offer Information 2
Message from the Ch...
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Peter Biantes | Wattle Health Australia

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Peter Biantes works as a Interim Independent Non Executive Chairman at Wattle Health Australia, which is a Food & Beverage company with an estimated 14 employees; and founded in 2011. Peter is currently based in Abbotsford, Australia.

Peter Biantes works as a Interim Independent Non Executive Chairman at Wattle Health Australia, which is a Food & Beverage company with an estimated 14 employees; and founded in 2011. Peter is currently based in Abbotsford, Australia.

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Peter Biantes | Wattle Health Australia

  1. 1. WATTLE HEALTH AUSTRALIA LIMITED REPLACEMENT PROSPECTUS THIS IS A REPLACEMENT PROSPECTUS DATED 1 FEBRUARY 2017. IT REPLACES THE ORIGINAL PROSPECTUS DATED 13 JANUARY 2017. ACN 150 759 363 For the Offer to issue up to 40 million Shares at an issue price of $0.20 per Share to raise up to $8 million (with a minimum raising of $6 million) IMPORTANT INFORMATION: This is an important document and it should be read in its entirety. If after reading this Prospectus, you do not fully understand it or the rights attaching to the Shares offered by it, you should consult an accountant, solicitor or other professional advisor for assistance. The Shares offered by this Prospectus should be considered speculative.
  2. 2. OFFER The Offer contained in this Prospectus is an invitation to acquire fully paid ordinary shares (Shares) in Wattle Health Australia Limited ACN 150 759 363 (Company, Wattle Health or WHA). LODGEMENT AND LISTING This is a Replacement Prospectus dated 1 February 2017 (Prospectus) and replaces the original prospectus lodged with ASIC and dated 13 January 2017. This Prospectus has been issued to: » » include in the Chairman’s Letter a reference to specific material risk factors for consideration by a potential investor in conjunction with the risk factors outlined in section 7; » » provide additional comment in relation to WHA’s existing product formulations; » » clarify any discrepancies between the description of the Company’s principal business activities contained in the Company’s audited financial reports and this Prospectus; » » include a revised Investigating Accountant’s Report signed by Jeffrey Luckins which demonstrates that the audit function and Investigating Accountant’s Report were performed by separate teams within William Buck Audit (Vic) Pty Ltd; » » remove references to the bonus payable to a number of executives based on gross revenue as the relevant executives have agreed to waive such entitlements; and » » include further information regarding the Shares held by Eric Jiang, together with related corresponding changes. A copy of this Prospectus was lodged with the Australian Securities and Investments Commission (ASIC) on 1 February 2017. The Company has applied to ASX Limited (ASX) for admission of the Company to the Official List of ASX and quotation of its Shares on ASX. None of ASIC, ASX or their officers take any responsibility for the content of this Prospectus or for the merits of the investment to which this Prospectus relates. NOTE TO APPLICANTS The information in this Prospectus is not financial product advice and does not take into account your investment objectives, financial situation or particular needs. It is important that you read this Prospectus carefully and in its entirety before deciding whether to invest in the Company. In particular, you should consider the risk factors that could affect the performance of the Company. You should carefully consider these risks in light of your personal circumstances (including financial and tax issues) and seek professional guidance from your stockbroker, solicitor, accountant or other independent professional adviser before deciding whether to invest in Shares. Some of the key risk factors that should be considered by prospective investors are set out in section 7. There may be risk factors in addition to these that should be considered in light of your personal circumstances. You should also consider the assumptions underlying the financial information and the risk factors that could affect the Company’s business, financial condition and results of operations. No person named in this Prospectus, nor any other person guarantees the performance of the Company or the repayment of capital or any return on investment made pursuant to this Prospectus. SPECIFIC RISKS AS AN EARLY STAGE COMPANY Applicants should carefully consider the risk factors that affect the Company specifically and generally the industry in which it operates. Applicants should note that an early stage company seeking to achieve branding recognition in new markets and market penetration is a high risk endeavour. Applicants should understand that an investment in an early stage company is both speculative and subject to a wide range of risks. Applicants may lose the entire value of their investment. Details of the risk factors of which investors should be aware are described in more detail in section 7 of this Prospectus. NO OFFERING WHERE OFFERING WOULD BE ILLEGAL This Prospectus does not constitute an offer or invitation in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation. No action has been taken to register or qualify the Shares or the Offer, or to otherwise permit a public offering of the Shares in any jurisdiction outside Australia. The distribution of this Prospectus outside Australia may be restricted by law and persons who come into possession of this Prospectus outside Australia and should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. This Prospectus has been prepared for publication in Australia and may not be released or distributed in the United States. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States. The Shares and Existing Shares have not been, and will not be, registered under the US Securities Act or the securities laws of any state of the United States, and may not be offered or sold in the United States, or to, or for the account or benefit of a US Person, except in a transaction exempt from the registration requirements of the US Securities Act and applicable United States state securities laws. The Offer is not being extended to any investor outside Australia, other than to institutional investors as part of the Offer. This Prospectus does not constitute an offer or invitation to potential investors to whom it would not be lawful to make such an offer or invitation. FINANCIAL INFORMATION PRESENTATION Section 5 sets out in detail the financial information referred to in this Prospectus. The basis of preparation of that information is also set out in section 5. All financial amounts contained in this Prospectus are expressed in Australian dollars and rounded to the nearest $0.1 million unless otherwise stated. Any discrepancies between totals and sums of components in tables contained in this Prospectus are due to rounding. This Prospectus contains forward looking statements which are identified by words such as “may”, “could”, “believes”, “estimates”, “expects”, “intends” and other similar words that involve risks and uncertainties. Any forward looking statements are subject to various risk factors that could cause the Company’s actual results to differ materially from the results expressed or anticipated in these statements. Forward looking statements should be read in conjunction with risk factors as set out in section 7 and other information in this Prospectus. DISCLAIMER No person is authorised to give any information or to make any representation in connection with the Offer described in this Prospectus which is not contained in this Prospectus. Any information not so contained may not be relied upon as having been authorised by the Company, or any other person in connection with the Offer. You should rely only on information in this Prospectus. It is expected that the Shares will be quoted on ASX initially on a deferred settlement basis. The Company and the Share Registry disclaim all liability, whether in negligence or otherwise, to persons who trade Shares before receiving their holding statement. EXPOSURE PERIOD The Corporations Act prohibits the Company from processing Applications in the seven day period after the date of Prospectus lodgement (Exposure Period). The Exposure Period may be extended by ASIC by up to a further seven days. The purpose of the Exposure Period is to enable the Prospectus to be examined by market participants prior to the raising of funds. Applications received during the Exposure Period will not be processed until after the expiry of the Exposure Period. No preference will be conferred on any Applications received during the Exposure Period. OBTAINING A COPY OF THIS PROSPECTUS A paper copy of the Prospectus is available free of charge to any person in Australia by calling the Company Offer Information Line on 1300 88 79 69 (within Australia) or +61 3 8399 9419 (outside Australia) from 9.00am until 5.00pm AEDT Monday to Friday during the Offer period. This Prospectus is also available to Australian resident investors in electronic form at the Offer website, www.wattlehealth.com.au. The Offer constituted by this Prospectus in electronic form is available only to Australian residents accessing the website from Australia. It is not available to persons in the United States. Persons who access the electronic version of this Prospectus should ensure that they download and read the entire Prospectus. Applications for Shares may only be made on the appropriate Application Form attached to, or accompanying, this Prospectus in its paper copy form, or in its electronic form which must be downloaded in its entirety from www.wattlehealth.com.au. By making an Application, you declare that you were given access to the Prospectus, together with an Application Form. The Corporations Act prohibits any person from passing the Application Form on to another person unless it is attached to, or accompanied by, this Prospectus in its paper copy form or the complete and unaltered electronic version of this Prospectus. DEFINED TERMS AND ABBREVIATIONS Defined terms and abbreviations used in this Prospectus are explained in section 10. Unless otherwise stated or implied, references to times in this Prospectus are to AEDT. PRIVACY By completing an Application Form, you are providing personal information to the Company, and the Share Registry, which is contracted by the Company to manage Applications. The Company, and the Share Registry on their behalf, collect, hold and use that personal information to process your Application, service your needs as a Shareholder, provide facilities and services that you request and carry out appropriate administration. Once you become a Shareholder, the Corporations Act and Australian taxation legislation require information about you (including your name, address and details of the Shares you hold) to be included in the Company’s public register. The information must continue to be included in the Company’s public register if you cease to be a Shareholder. If you do not provide all the information requested, your Application Form may not be able to be processed. The Company, and the Share Registry may disclose your personal information for purposes related to your investment to their agents and service providers or as otherwise authorised under the Privacy Act 1988 (Cth). You may request access to your personal information held by or on behalf of the Company. You can request access to your personal information or obtain further information about the Company’s privacy practices by contacting the Share Registry or the Company. The Company aims to ensure that the personal information it retains about you is accurate, complete and up-to-date. To assist with this, please contact the Company or the Share Registry if any of the details you have provided change. In accordance with the requirements of the Corporations Act, information on the Shareholder register will be accessible by members of the public. PHOTOGRAPHS AND DIAGRAMS Photographs used in this Prospectus which do not have descriptions are for illustration only and should not be interpreted to mean that any person endorses this Prospectus or that assets shown in them are owned by the Company. Diagrams used in this Prospectus are illustrative only and may not be drawn to scale. Unless otherwise stated, all data contained in graphs, charts and tables is based on information available as at the date of this Prospectus. IF YOU HAVE ANY QUESTIONS If after reading this Prospectus, you do not fully understand it or the rights attaching to the Shares offered by it, you should consult an accountant, solicitor or other professional advisor for assistance. The Company is unable IMPORTANT NOTICES
  3. 3. Wattle Health Australia Limited Replacement Prospectus 1 Important Notices IFC Key Offer Information 2 Message from the Chairman 3 1. Investment Overview 4 2. Company Overview 18 3. Industry Overview 23 4. Board and Management 27 5. Financial Information 30 6. Investigating Accountant’s Report 40 7. Risk Factors 45 8. Taxation 52 9. Additional Information 54 10. Glossary 66 Corporate Directory IBC Contents
  4. 4. 2  Key Offer Information Wattle Health Australia Limited (WHA) is seeking to raise under this Prospectus: • Minimum Subscription of $6 million by the issue of 30 million Shares at an issue price of 20 cents per Share; and • Maximum Subscription of $8 million by the issue of 40 million Shares at an issue price of 20 cents per Share. BASED ON THE MINIMUM SUBSCRIPTION ($6 MILLION) BASED ON THE MAXIMUM SUBSCRIPTION ($8 MILLION) Existing shares on issue* 74,531,250 74,531,250 Lead Manager Shares 200,000 200,000 Shares offered under this Prospectus** 30,000,000 40,000,000 Offer Price $0.20 $0.20 Total number of Shares on completion of the Offer 104,731,250 114,731,250 Gross Proceeds from the Offer $6,000,000 $8,000,000 Indicative market capitalisation at Offer Price $20,946,250 $22,946,250 * This assumes conversion of existing convertible notes into fully paid ordinary shares immediately prior to Listing. In addition the Company has allotted or committed to allot 1,122,500 performance rights as detailed in section 9.7. ** The percentage of Shares in the total share capital of the Company available at Listing for investors to freely trade in the public market (i.e. “free float”) is 28.64% based on the Minimum Subscription and 34.86% based on the Maximum Subscription. INDICATIVE KEY DATES* Original Prospectus lodged with ASIC 13 January 2017 Replacement Prospectus dated 1 February 2017 Opening Date 28 January 2017 Closing Date 24 February 2017 Expected date for allocation of WHA Shares 10 March 2017 * These dates are indicative only and may change. The Company reserves the right to amend any and all of the above dates without notice to you including (subject to the ASX Listing Rules and the Corporations Act), to close the Offer early, to extend the Offer, to accept late Applications, either generally or in particular cases, or to withdraw the Offer before settlement. If the Offer is withdrawn before the issue of the Shares, then all Application Monies will be refunded in full (without interest) as soon as practicable in accordance with the requirements of the Corporations Act.
  5. 5. Wattle Health Australia Limited Replacement Prospectus 3  Message from the Chairman Dear Investor, I have great pleasure in presenting this Prospectus and offering to you the opportunity to become a Shareholder in Wattle Health Australia Limited ACN 150 759 363 (WHA). This Prospectus offers for subscription Shares in WHA at $0.20 to raise a minimum of $6 million and up to a maximum of $8 million. JB Advisory Pty Ltd has been appointed as Lead Manager to this initial public offering (IPO). WHA conducts business in the fast moving consumer food category with an initial focus on dairy products (dried milk and infant formula). WHA is committed to producing high quality 100% Australian made dairy, health and wellness products. While WHA does not have its own internal product development team, WHA’s external consultants have developed 27 product formulations for WHA, with 7 of those formulations now commercialised for use in infant formula and dried milk products and from the remaining 20 non commercialised formulations, up to 10 products from WHA’s natural baby food range may be commercialised in the next 24 months from the funding to be raised under this Prospectus. Product formulations are not capable of patent protection and therefore WHA in addition to its product formulations has undertaken trade mark registrations to protect its branding strategy (albeit that WHA’s profile and branding is at an early stage of market penetration). WHA also outsources manufacturing/production of those commercial products as WHA does not have internal production/manufacturing facilities. WHA has entered into two manufacturing agreements with third parties but as WHA does not have its own internal production/manufacturing facilities, WHA faces material risks in its supply chain. Further with the changes in regulations for the importation and sale of dairy products into China (which are operative from January 2018 and restrict the number of brands of dairy products), investors should note there is material uncertainty that WHA will have access to supply of suitable dairy products for sale into China from January 2018 – however that does not impact on sale of dairy products in the Australian markets or to other Asian export markets. WHA is a relatively new entrant into the market of nutritional health and food products achieving first material revenues during the current financial year. It therefore faces (in addition to the risks mentioned above), risks common to any developing business including continuing to build depth and infrastructure, successfully achieving market penetration, alignment with strategic partners to secure market share and ultimately building brand and product trust with consumers. The main risk factors associated with an investment pursuant to this Prospectus are highlighted in section 7. The Offer is important for WHA as funding from the Offer will allow it to continue its focus on brand awareness and market penetration with its current commercialised products and also provide for the continued commercialisation of its wider formulation range. The Closing Date for application and payment is 5:00pm AEDT on 24 February 2017, unless the Minimum Subscription is reached earlier, or later as determined by the Directors. On behalf of the Directors, I recommend this Offer to you and look forward to your support and participation as a Shareholder. Yours sincerely Lazarus Karasavvidis Executive Chairman Wattle Health Australia Limited
  6. 6. 4 Investment Overview 1.
  7. 7. Wattle Health Australia Limited Replacement Prospectus 5 1. Investment Overview This section is a summary only of the information contained in this Prospectus. Investors should read and consider this Prospectus in its entirety. TOPIC DETAILS WHERE TO FIND MORE INFORMATION A. INTRODUCTION Who is WHA? WHA is an Australian company, based in Melbourne Victoria, committed to developing, sourcing and marketing high quality Australian made consumer food products. WHA operates in the fast moving consumer goods industry (FMCG), currently focusing on infant formula and dried dairy products. While WHA does not have its own internal product development team, WHA’s external consultants have developed 27 product formulations for WHA. From the 27 product formulations, WHA has successfully commercialised: • Full Cream dried milk powder; • Three Domestic Infant Formulas for the Australian domestic market – • Stage 1, infants from birth to 6 months; • Stage 2, infants from 6 to 12 months; • Stage 3, infants from 12 months plus. • Three Export Infant Formulas for the export markets – • Stage 1, infants from birth to 6 months; • Stage 2, infants from 6 to 12 months; • Stage 3, infants from 12 months plus. WHA has focussed on sourcing quality Australian based manufacturers to produce WHA products and is proud to be 100% Australian made. WHA’s main objective is to be a brand of choice in the Australian domestic markets and secondly take advantage of its Australian product offering to enter export markets. Sales in the Australian market have just commenced with an exclusive sales agreement with JR Duty Free for the sale of Wattle Health Domestic Infant Formula, Stages 1, 2 and 3 and dried milk products from the WHA product portfolio across JR Duty Free outlets in Australia. WHA has had its first major commercial sales of its China CIQ registered Export Infant Formula in China. Section 2 What is the Company’s business model? The Company has to date heavily focused on product formulations, regulatory compliance (for distribution of food products), establishing branding (with various trade mark registrations) and developing relationships with quality Australian manufacturers to produce its product formulation range. The Company’s business model is to continue to build on the achievements to date, increase Australian domestic sales and export sales while at the same time bringing more of its existing product formulations to the stage of commercial sales. As mentioned above, WHA’s 7 initial commercialised products focus on infant formula and dried milk goods. Section 2.3
  8. 8. 1. Investment Overview 6 TOPIC DETAILS WHERE TO FIND MORE INFORMATION What is the Offer Price and total to be raised? The Offer Price is 20 cents per Share with a minimum of $6 million (Minimum Subscription) and a maximum of $8 million (Maximum Subscription). See Key Offer Information section on page 2 of this Prospectus What is the purpose of the Offer and how will the proceeds of the Offer be used? The primary purpose of the Offer is to raise funds to: • support the Company’s Expenditure Program; • achieve Listing on the ASX to broaden the shareholder base and provide a market for the Shares; • to pay the expenses of the Offer; and • to provide working capital. Section 2.9 Use of funds The Company’s anticipated use of funds raised under this Prospectus is summarised in the table below: Use of Funds* Minimum Subscription $6m Target Subscription $7m Maximum Subscription $8m Sales and Marketing 2,495,474 2,796,599 3,089,490 Commercialisation** 576,974 735,626 908,485 New Product Development*** 114,000 584,222 1,048,472 Working Capital and corporateAdministration 2,193,552 2,193,553 2,193,553 Expenses of the Offer 620,000 690,000 760,000 TOTAL 6,000,000 7,000,000 8,000,000 * This anticipated Expenditure Program may vary from the actual expenditure. For more detail, see Expenditure Program below. ** This expenditure relates to the existing 7 commercialised dried milk products (including infant formula). ***This expenditure relates to the 20 existing non-commercialised product formulations, in particular the commercialisation of products from WHA’s natural baby food range. Section 2.9
  9. 9. Wattle Health Australia Limited Replacement Prospectus 7 TOPIC DETAILS WHERE TO FIND MORE INFORMATION Expenditure Program Based on the minimum capital raising under this Prospectus, WHA intends to undertake a program of works described in its Expenditure Program over a 24-month period commencing from the date of Listing to: • increase the sales and marketing budget to expand brand awareness to drive both direct and retail channel sales for WHA’s current commercialised products in the Australian domestic market and with a secondary focus on export markets (leveraging off WHA’s China CIQ registration for its Export Infant Formula range); • continue the commercialisation of WHA’s portfolio of product formulations predominately for the Australian domestic market. As outlined earlier, WHA has to date had developed 27 product formulations, of which 7 (in the dried milk category) have already been commercialised. Under the Expenditure Program, from the remaining 20 product formulations, up to 10 products from WHA’s natural baby food range may be commercialised (depending on whether the minimum, target or maximum amount is raised under this Prospectus); • provide working capital to carry out the Company’s stated objectives as detailed in this Prospectus; and • pay the cost of the Offer. Section 2.9 Working capital On completion of the minimum capital raising under this Prospectus, WHA will have sufficient working capital to carry out its stated objectives from its Listing (as detailed in this Prospectus). Section 5 No financial forecast WHA believes that revenue forecasts relating to early stage businesses are uncertain and there are a number of significant matters outside its control relating to the Company’s future performance. In light of these factors and having regard to ASIC Regulatory Guide 170, the Directors consider at this stage WHA is unable to provide potential investors with reliable revenue, profit or cash flow projections or forecasts – other than having sufficient working capital (which has been calculated on an estimated expenditure basis without any revenue for a 24-month period). Potential investors should take into account this uncertainty and lack of financial forecast in considering the risks in investing in the Company’s Shares. Section 7 Dividend policy During this early growth stage of WHA the Directors intend to re-invest surplus capital in the Company’s continued brand and product development. The financial prospects of WHA are dependent on a number of factors, including without limitation market penetration of its lead commercialised products. Accordingly, the Directors do not believe WHA will be in a position to declare any dividends in the foreseeable future. –
  10. 10. 1. Investment Overview 8 TOPIC DETAILS WHERE TO FIND MORE INFORMATION Is the Offer underwritten? No, the Offer is not underwritten. However, the Company has appointed JB Advisory Pty Ltd as Lead Manager to the Offer. Section 9.7 Taxation considerations The tax treatment and consequences of the Offer will vary depending on the particular circumstances of the Applicant. WHA accepts no liability or responsibility in relation to any taxation consequences connected to the Offer. Therefore, regarding the appropriate tax treatment that applies to the Offer, it is the responsibility of any Applicant who makes an Application to satisfy themselves by consulting their own professional tax advisors prior to investing in the Company. Section 8 ASX listing application Not later than 7 days after the date of this Prospectus, application will be made to the ASX for WHA to be admitted to the Official List of the ASX and for the Official Quotation of the Shares. The fact that the ASX may admit WHA to its Official List is not to be taken in any way as an indication of the value or merits of WHA or of the Shares offered under this Prospectus. Official Quotation, if granted, will commence as soon as practicable after the issue of transaction holding statements to successful Applicants. If permission for quotation of the Shares is not granted within 3 months after the date of this Prospectus, all Application money will be refunded without interest. – B. KEY FINANCIAL INFORMATION What is the key financial information of the Company? The summarised pro forma financial position of WHA after the Offer is set out in the Financial Section of this Prospectus. The Financial Section of the Prospectus includes three years of audited accounts for the financial years 2014, 2105 and 2016; and audited accounts for the 4 month period ended 31 October 2016. Should WHA raise the target raise of $7 million and be successfully listed on the ASX, at Listing it will have: • total assets of $9,180,420; • total liabilities of $397,826; and • a net equity position of $8,782,594. Section 5
  11. 11. Wattle Health Australia Limited Replacement Prospectus 9 TOPIC DETAILS WHERE TO FIND MORE INFORMATION C. KEY STRENGTHS AND OPPORTUNITIES Experienced executive team WHA has a highly experienced management team led by its Executive Chairman and Chief Executive Officer, Lazarus Karasavvidis. The team’s skills are spread across the WHA organisation, particularly in supply chain management, global distribution networks, sales and marketing in Australia. WHA has also located one of its sales executives (Mr Martin Glenister) in Asia to enable WHA to capture export market opportunities as they arise. WHA was founded in 2011 by Lazarus Karasavvidis and Martin Glenister. They were jointly responsible for developing the WHA brand, current market position and ensuring the WHA product offering attractiveness to consumers. They have been joined by a leadership and management group with extensive experience in the FMCG industry in Australia and overseas. Section 4 Competitive advantage An important feature of the WHA brand and formulation portfolio is that it is intended all products will be 100% Australian-made. Our approach is designed to assist WHA to achieve the quality standards, product integrity and distribution efficiencies. These are contributing factors and advantages for WHA to increase the credibility of the brand across consumer and potential retail partners locally and overseas. Section 2.4 Asian export market – food standards In addition to the Australian domestic market, the large Asian export markets (such as the Chinese market) are a focus for WHA. Chinese regulatory authorities have issued detailed and onerous requirements for the importation of dairy products into China. WHA has obtained Chinese approval (China CIQ registration) for its initial Export Infant Formula range of products to provide the basis generally for its entry into the Chinese market. This China CIQ registration requires WHA to purchase its Export Infant Formula range for export into China from Blend and Pack (a CNCA accredited manufacturer for infant formula) and use Suzhou Peloris Trading Co Ltd as its import agent. See section 9.6 for details of the Blend and Pack Nutritional Powders Supply Agreement and the Peloris Global Sourcing Agreement (which outlines WHA’s current Chinese import arrangements). WHA’s China CIQ registration is current as at the date of this Prospectus. Obtaining and maintaining China CIQ registration is an onerous and lengthy process but it is envisaged to support WHA’s entry into Asian export markets – should countries other than China impose similar requirements. China CIQ registration allows WHA’s 3 Export Infant Formula products to be exported into China and sold in all sales channels including both retail and online. WHA has not commenced online sales at this point in time. Sections 3.4, 7.2 (g), 7.2(h), 9.6
  12. 12. 1. Investment Overview 10 TOPIC DETAILS WHERE TO FIND MORE INFORMATION D. KEY RISKS Risk of future funding requirements WHA has limited financial resources and will need to raise additional funds from time to time. In certain circumstances, the Company’s ability to successfully operate may be subject to its ability to raise funds which will be subject to factors beyond the control of WHA and its Directors (including without limitation cyclical factors affecting the economy, financial and share markets generally). Section 7.2 Speculative nature of investment The Shares to be issued pursuant to the Prospectus carry no guarantee with respect to the payment of dividends, returns of capital or the market value of those Shares. The success of WHA is largely dependent on the roll out of its commercialisation strategy for its existing product formulation range, continued supply of its commercialised products in commercial quantities from its suppliers/manufacturers and the performance by WHA’s sales and marketing channels/partners. The Company has only recently commenced that commercialisation strategy, having to date invested in the development of its formulation range, regulatory approval, brand protection, sourcing suppliers and building an infrastructure for commercial sales. An investment in its Shares should therefore be considered very speculative reflecting the Company’s commercialisation start up and early stage of product branding. There is the risk of loss of all of an investor’s capital with no dividends or other returns. Section 7.2 Business strategy execution risk The Company’s growth and financial performance is dependent on the Company’s ability to successfully execute its business strategy, commercialise its formulation range and gain market share/sales. There can be no assurance that WHA can successfully achieve any or all of the initiatives set out in section 2.3. The failure by WHA to successfully execute its business strategy could have a material adverse effect on the Company’s business, financial condition and results of operations. Section 7.2 (b)
  13. 13. Wattle Health Australia Limited Replacement Prospectus 11 TOPIC DETAILS WHERE TO FIND MORE INFORMATION Limited history in the nutritional health and food products market WHA is a relatively a new entrant in the market of nutritional health and food products. As outlined, to date WHA has invested in its formulations range, sourcing manufacturers, developing brand awareness and ensuring all commercial products comply with Australian regulations and obtaining China CIQ registration for 3 formulations of its Export Infant Formula to support future export sales in China. WHA’s commercial sales/distribution strategy has only recently commenced with gross sales for the period from 1 July 2016 to 31 October 2016 of $771,255. WHA therefore faces the risks common to any growing company including: • continuing building its depth and infrastructure; • commercial product development; • successfully obtaining market penetration and strategic partners to secure market share; • increasing its product/brand recognition in the market; and • obtaining sufficient market penetration/acceptance by domestic consumers. Investors should consider WHA’s business and prospects in the light of the risks, uncertainties, expenses and challenges that it may face as an early-stage business. If WHA is not successful in addressing such risks, WHA’s business prospects and financial performance may be materially and adversely affected. Section 7.2 (c) Dependence on service providers WHA as a sales, marketing and product development company is heavily reliant on its main third party manufacturers, suppliers, distributors, logistics and clearance providers and sales channels. In this regard, WHA operates a significant amount of its key activities through a series of contractual relationships with independent contractors and some of those arrangements are only entered into to fulfil particular requirements on a timely basis (for example a product order is generated by the sales distribution agents, WHA would contract a manufacturer for the supply of product to fill that order). All of the Company’s contracts carry a risk that the third parties do not adequately or fully comply with its or their respective contractual rights and obligations. Such failure can lead to termination and/or significant damage to the Company’s branding, customer profile and generally the Company’s business including loss of profit and business/sale opportunities. Additionally, WHA sources its products from a range of suppliers, a loss of one or multiple suppliers, or a significant disruption in the supply chain could have a material adverse effect on the Company. Section 7.2 (f)
  14. 14. 1. Investment Overview 12 TOPIC DETAILS WHERE TO FIND MORE INFORMATION Risks in ability to export food products to Asian markets WHA has registered 3 formulations of its Export Infant Formula products with China CIQ which is required for importation of those particular products into China. This registration is current as at the date of this Prospectus and is dependent on WHA sourcing its product requirements from Blend and Pack (which is a CNCA accredited manufacturer) and using Suzhou Peloris Trading Co Ltd as its import agent. Details of the current Blend and Pack Nutritional Powders Supply Agreement and the Peloris Global Sourcing Agreement (which outlines WHA’s current Chinese import arrangements) are summarised in section 9.6. It is important to note that Blend and Pack has no contractual obligation to continue to supply WHA with its Export Infant Formula product range. Where Blend and Pack accepts a product order from WHA, the order is then fulfilled on the terms of a Blend and Pack Nutritional Powders Supply Agreement which applies on an order by order basis. Rigorous requirements must be satisfied in order to obtain China CIQ registration for an infant formulation and this may act as a barrier to entry for many other competitor businesses wanting to export their infant formula products into China. While WHA’s current China CIQ registration is an important competitive advantage for WHA, all China CIQ registrations are to be reviewed by the Chinese regulatory authorities with effect from 1 January 2018 and there is no guarantee WHA will be successful in its renewal and even where successful WHA would need to secure a product manufacturer which has CNCA accreditation satisfactory to the Chinese regulatory authorities. The process required to maintain the China CIQ registration is also in itself onerous and includes regular ongoing audits by the relevant authorities. If: • WHA were to lose its current China CIQ registration (for example, as a result of a change in government, legislation, or breach of any China CIQ registration condition); • WHA’s China CIQ registration is not renewed in January 2018 or WHA is not able for any reason to source supply of its Export Infant Formula products from a CNCA accredited manufacturer; or • it becomes easier for competitors to obtain China CIQ registration due to government changes, this may limit WHA’s ability to be able to expand the market for its products in China. However, China CIQ registration is only required for sales of infant formula in China. Accordingly, WHA will be able to continue to sell its products in the Australian domestic market and expand to other export markets. Sections 7.2 (g) and 7.2(h)
  15. 15. Wattle Health Australia Limited Replacement Prospectus 13 TOPIC DETAILS WHERE TO FIND MORE INFORMATION Key reliance on manufacturer relationship WHA is not a manufacturer, thus it relies on third party manufacturers to supply all of its products. (A) NATURE ONE DAIRY PTY LTD WHA has a non-exclusive Supply Agreement with Nature One Dairy Pty Ltd to supply its infant formula products for the Australian domestic market and other export markets. Please see section 9.6(C) of this Prospectus for further information. However, for export sales of infant formula to China, a CNCA accredited manufacturer with a specific infant formula CNCA accreditation is required. (B) CNCA MANUFACTURER FOR INFANT FORMULA Manufacturers of China CIQ registered formulations must themselves also be CNCA accredited. Currently, WHA has a relationship with a CNCA accredited manufacturer (Blend and Pack) which manufactures WHA’s China CIQ registered formulations being its Export Infant Formula product range. However, Blend and Pack does not have an ongoing obligation to supply WHA with its Export Infant Formula product range and there is a risk Blend and Pack may refuse orders from WHA. As at the date of this Prospectus, Blend and Pack has not previously refused any supply orders for WHA’s Export Infant Formula product range. Accordingly, there is a material risk to the Company’s business if one or more of its significant manufacturers/suppliers for any reason is unable or refuses to manufacture products for WHA as required, breaches or terminates any supply arrangement with the Company. Section 7.2 (e) Reduced demand for the Company’s products The future success of WHA will be primarily reliant on achieving market penetration for its commercialised products and then continued growth in demand for those products in both the Australian domestic markets and export markets. Sales to date are modest and this market penetration stage for the Company carries significant risk. Apart from the risk of achieving market penetration/growing commercial sales, there is a general risk that consumer demand for infant formula products similar to WHA’s own formulation range may decrease for reasons outside the Company’s control, including the introduction of new taxes, aggressive selling by competitors, other countries and similar/substitute products being made available locally and abroad in Asia. This may have a material adverse effect on the Company’s future financial performance. Section 7.2 (j)
  16. 16. 1. Investment Overview 14 TOPIC DETAILS WHERE TO FIND MORE INFORMATION Competition risk WHA participates in a highly competitive FMCG global business market against many competitors with significantly greater financial, technical, human, development and marketing resources than the Company. Many of those competitors already have a significant market branding/ presence or market share. Some of these competitors may be able to respond more effectively to changing business and economic conditions than WHA. Competition in this segment is largely based on branding profile, pricing of products, quality of products, perceived value of products, in-store presence/visibility and promotional activities (including online advertising). WHA cannot predict what its competitors will do in these areas or whether new competitors offering comparable products at more attractive prices will emerge. Further, at the date of this Prospectus WHA has only 7 commercialised products in the dried dairy milk category and therefore has exposure to changes in competition or new products in this dried dairy milk category – without the benefit of any current product differentiation at this time into other non dairy milk categories. As a consequence, the Company’s current and future products may become uncompetitive, resulting in adverse effects on revenue, margins and profitability. Additionally, WHA’s ability to compete will depend on a number of other factors such as the continued strength of the Company’s brand and products, its ability to enter into new markets and increase its presence in existing markets. Section 7.2 (k) Currency risk Any revenue and expenditures in export markets are subject to the risk of fluctuations in foreign exchange markets. Part of the Company’s business strategy is aimed at penetrating export markets in Asia and therefore it is possible a material proportion of its expenses and potential revenue will be in foreign currencies. Accordingly, payment will be made in those countries’ currencies, and may exceed the budgeted expenditure if there are adverse currency fluctuations against the Australian dollar. WHA has no plans at this stage to hedge its foreign currency payments. Section 7.2 (o) Expenditure Program WHA has not entered into contracts for a number of the material items covered by the Expenditure Program, nor does it have binding quotations in relation to such items. Rather the Directors have determined that following the successful close of the Offer, WHA will be well positioned to negotiate the exact terms for such contracts. It is possible that actual expenditure may be more than estimated by WHA in its anticipated Expenditure Program. This could, depending on the difference in actual costs, require WHA to seek to raise additional funding. The Directors and management have relevant industry experience and have prepared the anticipated Expenditure Program based partly on discussions with or indicative quotes obtained from potential suppliers of those services and their own experience of the likely costs for those expenditure items. While the Directors are confident WHA will be able to source suitable suppliers, there is a risk that WHA may not be able to source those suppliers at the estimated expenditure in the Expenditure Program. Section 7.4
  17. 17. Wattle Health Australia Limited Replacement Prospectus 15 TOPIC DETAILS WHERE TO FIND MORE INFORMATION Regulatory requirements WHA and its products/proposed products are subject to various laws and regulations including but not limited to accounting standards, tax laws, environmental laws, product content requirements, labelling/ packaging, regulations and customs regulations. Changes in these laws and regulations (including interpretation and enforcement) could adversely affect the Company’s financial performance. Laws and regulations are specific to each geographic location where the Company’s products are manufactured or sold. In this regard, there is a risk that a certain product may not be able to be supplied in another jurisdiction because it fails to meet that jurisdiction’s regulatory requirements (e.g. product registration requirements). Failure of WHA to remain up to date with these various regulatory requirements, could adversely affect the Company’s financial performance. Section 7.2 (u) Key personnel WHA currently employs or engages as consultants, a number of key members of its management team. The loss of any of these people’s services could materially and adversely affect WHA and may impede the achievements of its product development and commercialisation objectives. The successful growth of WHA will require the services of additional staff. There can be no assurance that WHA will be able to attract appropriate additional staff and this may adversely affect the Company’s prospects for success. Section 7.2 (s) No independent valuation No independent valuation of the Company’s assets, intellectual property or generally the Company’s Shares has been carried out for the purposes of this Prospectus. Section 7.5 E. SUMMARY OF THE OFFER Opening and closing of the Offer Applications may be lodged at any time after the Opening Date until 5.00 pm (AEDT) on the Closing Date. See Key Offer Information section on page 2 of this Prospectus Minimum Subscription WHA has determined that the minimum amount to be raised under this Prospectus is $6 million (being 30,000,000 Shares). If this minimum amount is not raised within 3 months from the date of this Prospectus, all Application money will be refunded in full (without interest). See Key Offer Information section on page 2 of this Prospectus Allocation policy WHA reserves the right to authorise the issue of a lesser number of Shares than those for which Application has been made or to reject any Application. Where no issue or allocation is made or the number of Shares issued is less than the number applied for, surplus Application money will be refunded without interest. If an Application Form is not completed correctly, or if the accompanying payment is for the wrong amount, it may still be treated as valid. The Company’s decision as to whether to treat an Application as valid, and how to construe, amend or complete it will be final. The Company’s decision on the number of Shares to be allocated to an Applicant will also be final. –
  18. 18. 1. Investment Overview 16 TOPIC DETAILS WHERE TO FIND MORE INFORMATION What are the costs of the Offer? The estimated maximum costs of the Offer are approximately $760,000 (exclusive of any applicable GST) based on the maximum raising under this Prospectus. These costs will be paid by WHA out of the proceeds of the Offer and existing cash reserves. Section 9.12 Are there any additional costs payable by the Applicant? No brokerage, commission, stamp duty or any other costs are payable by Applicants on the acquisition of the Shares under the Offer. – F. WHA’S DIRECTORS Who are the directors of WHA? Lazarus Karasavvidis Co-founder, Executive Chairman Chief Executive Officer: Lazarus Karasavvidis has over 15 years business experience in Australia and Asia. Lazarus co-founded a successful Australian training and recruitment organisation (Skillup Australia) for a ten plus year tenure in a high level management position. This business was involved in Lean Manufacturing Six Sigma workplace improvement training programs, across a number of industries including Food, Health, Logistics, Business Services and Manufacturing. Lazarus has also co-founded a consulting services business in Laos, which has two divisions concentrating on unexploded ordnance (UXO) and Biomass. Since 2011, Lazarus has co-founded Wattle Health focusing on regulatory compliance within Australia and China, developing the Company’s product range and increasing brand awareness. Eric Jiang Independent Non-Executive Director: With over 15 years’ experience, Eric Jiang is an adviser to companies involved in trade between Australia and China. Eric brings a distinct understanding of the cultural, economic and strategic context in which Australian businesses engage with China. Eric currently sits on 3 ASX company boards. Peter Biantes Independent Non-Executive Director: Peter Biantes is a qualified CPA with over 40 years’ experience. He was a former owner, director, finance director and company secretary of Lemnos Foods Pty Ltd. Lemnos Foods Pty Ltd started as a small business and developed into a major dairy goods supplier. Section 4 What are the interests of the Directors or related parties in WHA? As at the date of this Prospectus, and after the completion of the Offer, the interests of the Directors of WHA (both direct and indirect) in WHA securities are outlined in section 9.9. Other relevant material interests are outlined in section 9.10. Sections 9.9 and 9.10
  19. 19. Wattle Health Australia Limited Replacement Prospectus 17 TOPIC DETAILS WHERE TO FIND MORE INFORMATION G. FOUNDING SHAREHOLDERS AND RELATED PARTIES The Founding Shareholders and what are their interests in WHA on completion of the Offer (Minimum Raise)? Based on the minimum raise of $6 million, the interests in WHA Shares are: Shareholders Number Of Shares (Held Directly Or Indirectly) Percentage Holdings Lazarus Karasavvidis and Martin Glenister* 34,014,734 32.48% Ian Olifent** 19,292,760 18.42% * The shareholding for Lazarus Karasavvidis and Martin Glenister is jointly held. ** Ian Olifent is associated with two Shareholders which collectively hold 19,292,760 Shares in the Company. These Shareholders are Gregory Rasmus as trustee for the Olifent Investment Trust (7,342,630 Shares) and GGP Investments Pty Ltd as trustee for GGP Superannuation Fund (11,950,130 Shares). Sections 9.9 and 9.10 Related party transactions The Company has entered into employment agreements with each of Lazarus Karasavvidis and Martin Glenister. Sections 9.9 and 9.10 H. APPLICATIONS How do I apply for Shares? By completing and submitting a valid Application Form accompanying this Prospectus. All Application money will be held on trust in a separate bank account that has been opened only for this purpose until the Shares are issued and allotted under the Offer, or the Application money is refunded to the unsuccessful Applicants. Applications must be for at least 10,000 Shares at an aggregate subscription price of $2,000 or a greater number in multiples of 5,000 Shares at an aggregate subscription price of $1,000. The Offer Price of $0.20 per Share is payable in full on Application. Cheques must be in Australian currency and made payable to “Wattle Health Australia Limited” and crossed “Not Negotiable”. – Lodgement of Applications Applicants should return their completed Application Forms together with their cheque for the Application money to: Wattle Health Australia Limited Share Offer c/- Computershare Investor Services Pty Limited GPO BOX 52 Melbourne VIC 3001 All Application money will be held in trust in a separate bank account which has been opened only for this purpose until the Shares are issued and allotted under the Offer or the Application money is returned to the Applicants. – Where can I find more information about this Prospectus or the Offer? Further information can be obtained by reading this Prospectus in its entirety. For advice on the Offer you should speak to your stockbroker, accountant or another professional adviser. If you require assistance or additional copies of this Prospectus please contact WHA on 1300 88 79 69 (within Australia) or +61 3 8399 9419 (outside Australia). –
  20. 20. 18 Company Overview 2.
  21. 21. Wattle Health Australia Limited Replacement Prospectus 19 2. Company Overview 2.1 ABOUT WHA WHA, founded on the 6th May 2011, is an Australian company, based in Melbourne, Victoria, committed to developing, sourcing and marketing high quality Australian made dairy, health and wellness food products. While WHA does not have its own internal product development team, WHA’s external consultants have developed 27 formulations for potential products for WHA, including a range of proposed nutritional food products (infant formula, full cream milk powder), natural baby food range and nutritional health supplement range. WHA’s objective is to become a major brand for its products in the Australian domestic market with a secondary objective to capture export market opportunities as they arise to further enhance the reach of its commercialised products, however investors should note that to date WHA has not been profitable and there is no guarantee that in the future WHA will be successful in the commercialisation of its products or achieve profitability. 2.2 WHA’S CURRENT COMMERCIALISED PRODUCTS WHA respects and understands that breastfeeding is the ideal source for babies to receive their nutrients for their first year of life. However, when a mother is unable or chooses not to breastfeed, WHA aims to provide a high quality infant formula with additional nutritional benefits for a baby’s development. WHA currently has commercialised and is actively selling domestically the following products: • Dried Milk Powder (Full Cream Milk Powder) • Domestic Infant Formula range: • Infant Formula Stage 1 which meets Australian and New Zealand regulations and specifications – suitable from birth to 6 months. • Infant Formula Stage 2 which meets Australian and New Zealand regulations and specifications – suitable from 6 months to 12 months. • Infant Formula Stage 3 which meets Australian and New Zealand regulations and specifications – suitable for toddlers from 12 months plus. WHA has also secured, commercialised and commenced initial sales in Asia. With respect to China, WHA uses its China CIQ registered Export Infant Formula range: • Infant Formula Stage 1 which meets Chinese regulations and specifications – suitable from birth to 6 months. • Infant Formula Stage 2 which meets Chinese regulations and specifications – suitable from 6 months to 12 months. • Infant Formula Stage 3 which meets Chinese regulations and specifications – suitable for toddlers from 12 months plus. While there is some common formulation in WHA’s Domestic Infant Formula and Export Infant Formula product range, there are differences reflecting the strict Australian, Chinese and various international standards for both manufacture and export of infant formula. For example, Australian and New Zealand dairy products must meet the FSANZ (Food Standard Australia and New Zealand) and infant formula exported into China must meet the GB Standard (China National Standard). WHA’s Domestic and Export Infant Formula range currently complies with all applicable manufacture and export standards required for sale in the relevant country. For further information on the regulatory framework and risks associated with the regulatory environment, please see sections 3.3 and 3.4. WHA sales have only commenced in the second half of 2016 year with WHA generating sales of $771,255 for the period 1 July 2016 ending 31 October 2016.
  22. 22. 2. Company Overview 20 2.3 WHA BUSINESS STRATEGY WHA business strategy is to: • develop high quality nutritional health and food products to deliver on WHA’s unique formulation for its current commercialised and proposed new products (using its existing product formulations); • source third party Australian manufacturers for its products with the objective to achieve high quality products being the WHA branding for sale to consumers. This is an important component of WHA’s business strategy as it enables WHA to take advantage of the reputation Australian products generally have with the Australian consumer; • build on its existing commercialised products; and • accelerate sales abroad with access to certain export markets. WHA uses only Australian manufacturers to manufacture its products. This is intended to give WHA the opportunity to promote and leverage on the brand positively in Australia and also in export markets as there is growing consumer sentiment for Australian made food products of a high standard. WHA will also look at growing the product range for the Australian domestic market by progressing the commercialisation of its existing product formulations (see sections 2.2 and 2.7). For this strategy to be successful, WHA is of the opinion that brand recognition and sales would need to be increased first in the Australian and New Zealand markets to add credibility to WHA. 2.4 WHA’S COMPETITIVE ADVANTAGES The Company believes its key competitive advantages include: • WHA sources all of its existing commercial products only from Australian manufacturers enabling it have Australian made certification for its products. • WHA has 27 product formulations that are anticipated to be able to be commercialised should the Company determine that there is a demand for such products or that such products will add to the brand awareness of WHA. • From those 27 product formulations, to date WHA currently has commercialised 7 food products which are available in the Australian domestic markets and also export markets. While commercial sales have only just commenced, WHA generated sales of $771,255 for the period 1 July 2016 to 31 October 2016. • WHA has an exclusive agreement and has commenced sales with an Australian duty free company, JR Duty Free Pty Ltd to sell the WHA Domestic Infant Formula product range and full cream milk powder in their stores across Australia. • WHA has achieved registration of its three Export Infant Formulas with China CIQ which is current as at the date of this Prospectus and is dependent on WHA continuing to source its product requirements from Blend and Pack (which is a CNCA accredited manufacturer) and using Suzhou Peloris Trading Co Ltd as its import agent. China CIQ registration is a current requirement to allow the export of infant formula into China, in all retail and online sales channels. WHA has not pursued online sales and has rather focussed on sales through distributors. The Chinese CIQ process is complex and generally can take up to 24 months to secure China CIQ registration for each product. 2.5 OTHER POTENTIALLY COMPETITIVE COMPANIES Many of WHA’s competitors in the FMCG global market have significantly greater financial, technical, human, development and marketing resources than the Company and those competitors in many cases have significant market/branding presence – as compared to WHA. Some of these competitors with their existing resources may be able to respond more effectively to changing business and economic conditions than WHA. Competition in FMCG markets is largely based on branding profile, pricing of products, quality of products, perceived value of products, in-store presence/visibility and promotional activities (including online advertising).
  23. 23. Wattle Health Australia Limited Replacement Prospectus 21 WHA cannot predict what its competitors will do in these areas or whether new competitors offering comparable products at more attractive prices will emerge. As a consequence, the Company’s current and future products may not achieve market penetration or even where WHA achieves market share, its products may subsequently become uncompetitive, resulting in adverse effects on revenue, margins and profitability. Additionally, WHA’s ability to compete will also depend on a number of other factors such as its ability in January 2018 to renew its existing China CIQ registration for its Export Infant Formula range, engage CNCA accredited manufacturers (such as Blend and Pack) to produce its Export Infant Formula range, the continued strength of the Company’s brand and products and its ability to enter into new markets and increase its presence in existing markets. 2.6 WHA’S PRODUCT DEVELOPMENT/MARKETING STRATEGY WHA’s initial strategy is to increase brand awareness of its current commercialised domestic products and continue increasing its sales both through quality retailers and direct sales. WHA will also look at growing the product range for the Australian domestic market by progressing the commercialisation of its other existing non commercialised product formulations where the Company is of the opinion the Company’s branding position supports new commercialised products and there is a demand for these products or generally it will increase the brand awareness WHA in its market segment. WHA intends to continue the development of new commercial products from its existing 27 product formulations where it believes the relevant product formulation can be commercialised successfully for the Australian domestic market and eventually into Asia. With respect to Asia, WHA intends to continue the development of its products for the wider Asian markets (other than China) to satisfy demand requirements in such regions. Where sufficient demand arises and subject to any relevant regulatory compliance requirements, WHA will be able to take advantage of its product manufacturing arrangements with Nature One Dairy Pty Ltd for the manufacture of its infant formula for certain regions in Asia. For further information on WHA’s current manufacturing arrangements with Nature One Dairy Pty Ltd, please see section 9.6(C) of this Prospectus. WHA will also take advantage of its China CIQ registration of its existing three Export Infant Formulas to capture further export market opportunities as they arise. However, it is important to note that while Blend and Pack has not previously refused to supply WHA with its Export Infant Formula product range requirements, Blend and Pack has no contractual obligation to continue to supply WHA with such products. 2.7 OTHER RELEVANT PRODUCTS In addition to WHA’s dried dairy products range, as outlined above WHA owns 20 non commercialised product formulations (yet to be commercialised and which may not be commercialised depending on market conditions and perceived demand) including: • natural baby food; and • vitamin and dietary supplements (as regulated by the Therapeutics Goods Administration). WHA’s vitamin and dietary supplements range have been registered by WHA with the Therapeutics Goods Administration. These 20 non commercialised product formulations (i.e. WHA’s natural baby food range and vitamin and dietary supplements range) are capable of immediate commercialisation and WHA intends to commercialise such products in the future only where WHA: • profile and branding from the sale of its dried dairy products supports the introduction of additional commercial products (based on the 20 non commercialised formulations); • determines that there is sufficient demand and market for such products; and • is able to source a suitable third party manufacturer. Based on the funds sought to be raised under this Prospectus, at the maximum capital raising of $8 million, WHA intends to commercialise up to 10 new products from its natural baby food range (which forms part of WHA’s portfolio of 20 non commercialised product formulations). Investors should note that there is no guarantee that (a) any of these non commercialised product formulations will be commercialised or (b) even if commercialised that there will be a market for those products or (c) where there is a market, what market penetration may be achieved by WHA for those products.
  24. 24. 2. Company Overview 22 2.8 TRADE MARKS AND INTELLECTUAL PROPERTY In order to provide statutory protection for its branding, WHA has instigated a program of registering trademarks in key countries. As at the date of the Prospectus, the Company has registered trademarks in Australia, China, Indonesia, Thailand, Vietnam and the United States of America. It has also lodged trademark applications in 114 other countries via the Madrid Protocol. While product formulations are not capable of patent protection; WHA also owns the copyright in the specifications, the packaging and labelling for each of its 27 formulations outlined in this Prospectus. It is important to note that the specifications reflect the composition of the relevant product (being the relative proportions of each constituent material which makes up the relevant product), but WHA does not own the individual constituent materials (such as the milk extract used in a product) which often is generic in nature. 2.9 OVERVIEW OF THE COMPANY’S FUNDING PROGRAM (A) MINIMUM FUNDING SCENARIO OF $6 MILLION WHA intends to raise a minimum of $6 million. This will provide funding to carry out its stated objectives after Listing (as detailed in this Prospectus) and will support the Company’s business plan of increasing brand awareness and sales in the Australian and New Zealand domestic market primarily with a secondary focus on exports into Asian markets. This will be achieved by: • maintaining the current Sales and Marketing Team in Australia to ensure all avenues to increase brand awareness and sales of WHA’s existing commercialised products are captured. This will involve engaging with retailers and also develop direct sale opportunities; • assessing and monitoring the demand and market conditions for WHA’s 20 non-commercialised existing product formulations (as described in section 2.7 above), but within the funding constraints of a minimum of $6 million raise WHA would not commercialise any of its other 20 non-commercialised products; and • continuing to seek export opportunities in Asian markets and expand its sales within those markets by having a full time employee positioned there. (B) TARGET FUNDING SCENARIO OF $7 MILLION WHA also has a target raise of $7 million. In addition to the proposed expenditure listed under the minimum funding scenario in section 2.9(a), the Company intends to use the additional funds to: • expand WHA’s Sales and Marketing team to be able to service the New Zealand market; • increase the commercialisation of WHA existing formulations to accelerate brand awareness and sales in the Australian and New Zealand markets; and • assess and monitor the demand and market conditions for WHA’s 20 non-commercialised existing product formulations (as described in section 2.7 above), for the purposes of introducing WHA’s natural baby food product range through the commercialisation of up to 10 new natural baby food products from WHA’s existing product formulations where the Company determines that there is demand for such products. (C) MAXIMUM RAISE OF $8 MILLION The Offer of Shares under this Prospectus is limited to a total funding of $8 million. With the ongoing growth and fast-paced nature of the market, the Company anticipates using the additional funds to: • further increase its Sales and Marketing Team for the Australian market; and • assess and monitor the demand and market conditions for WHA’s 20 non-commercialised existing product formulations (as described in section 2.7 above), for the purposes of expanding WHA’s natural baby food product range through the continued commercialisation of WHA’s existing natural baby food product range where the Company determines that there is demand for such products.
  25. 25. 23 Industry Overview 3.
  26. 26. 24 3. Industry Overview 3.1 INTRODUCTION WHA operates in the FMCG industry. WHA currently focusses on the dairy products segment of the FMCG industry, with a particular emphasis initially on infant formula and dried dairy goods. 3.2 WHAT IS INFANT FORMULA AND DRIED MILK POWDER In Australia, “infant formula” generally refers to an infant formula product which is produced as a substitute for breastmilk and which satisfies the nutritional requirements of infants. “Dried milk powder” generally refers to a milk powder produced by drying raw milk. 3.3 INFANT FORMULA/DRIED MILK POWDER IN AUSTRALIA (A) AUSTRALIAN MARKET FOR INFANT FORMULA AND DRIED MILK POWDER In the Australian domestic market, there is high demand for infant formula and dried milk powder. However, domestic manufacturers of infant formula and dried milk powder face strong competition from imports, particularly those from New Zealand. There are a number of small and large companies that manufacture, export, import and/or market infant formula and dried milk powder in Australia and New Zealand. It is difficult to obtain comprehensive data on the size of the market for infant formula including infant formula manufactured in or imported into Australia and New Zealand. The infant formula and dried milk powder category is dominated by a number of multinationals (through multiple brands). The remainder of the industry is generally characterised by small independent manufacturers of infant formula and dried milk powder. (B) REGULATION OF INFANT FORMULA IN AUSTRALIA (I) PRODUCT AND MANUFACTURING STANDARDS Infant formula products available in Australia are required to meet strict standards and regulatory requirements for food supply in Australia as set by Food Standards Australia and New Zealand (FSANZ). In particular, the FSANZ Food Standards Code requires among other things, that the raw materials used in the manufacture of infant formula and of the final product itself meet very stringent specifications. For example, Standard 2.9.1 of the FSANZ Food Standards Code specifies the: • composition requirements for infant formula including the mandatory nutrient contents for infant formula; and • labelling requirements for infant formula and specifically prohibits some types of images, symbols and claims on product labels. The FSANZ Food Standards Code is applicable to all manufactured dairy products. In this regard, WHA currently complies with and anticipates that it will continue to comply with the composition, labelling and safety requirements outlined in the FSANZ Food Standards Code. The Australian states and territories are responsible for implementing the requirements of the FSANZ Food Standards Code. In Victoria, Dairy Food Safety Victoria implements and enforces the food standards in the dairy industry through administration of the Victorian Dairy Act 2000 and the Food Act 1984. WHA is committed to ensuring that any manufacturer it uses to produce its infant formula and dried milk powder is approved by the relevant governing body in the state of production and complies with all applicable standards and regulations including but not limited to licensing requirements and quality management requirements (for example, using manufacturers which have a certified on site product safety program (HACCP)).
  27. 27. Wattle Health Australia Limited Replacement Prospectus 25 (II) DISTRIBUTOR IN AUSTRALIA In Victoria, a Dairy Distributor Licence must be held by the person or entity in charge of operating the dairy business. This includes a person or entity which purchases dairy products for the purpose of distribution and sale or owns a business that operates a dairy distribution premises. As WHA uses third parties to store and distribute products on its behalf, WHA is not required to hold a Dairy Distributor Licence. (III) AUSTRALIAN EXPORT REQUIREMENTS Under Australian export legislation, exporters of dairy products (including infant formula and dried dairy products) must be registered with the Department of Agriculture and Water Resources (DAWR). The dairy products to be exported must also be sourced from an export registered manufacturer. WHA is currently registered with DAWR (on the Export Documentation system) as an exporter of dairy products. 3.4 INTERNATIONAL MARKETS FOR INFANT FORMULA (A) INTERNATIONAL MARKET FOR INFANT FORMULA Globally, the milk powder market (including infant formula) is very active due to the demand for milk powder and infant formula in Asia. Australia, due to its high-quality food standards and ease of access to quality ingredients is thought to have placed Australian brands and manufacturers in prime position to export to Asia. Additionally and as a result of low Asian sourced milk products or of a perceived low quality of Asian sourced milk products, a large proportion of Australian milk powder (including infant formula) is exported to Asian countries other than China (e.g. Hong Kong and Singapore). The ability to export milk powder (including infant formula) to Asia is subject to a number of factors including changes in the global price of milk powder, changes in foreign laws and regulation and strong competition in global markets. Please see section 7 of this Prospectus which outlines other risks and factors which may impact WHA’s ability to export to Asia. WHA believes it is well positioned to take advantage of the demand for infant formula in Asia. In particular, for the Chinese market, WHA can take advantage of its China CIQ registration of its three initial Export Infant Formula products. Additionally, WHA’s Domestic Infant Formula range can be used for export into certain non-Chinese markets without any additional onerous regulatory or product registration requirements. (B) HIGH LEVEL OF REGULATION FOR THE MANUFACTURE OF INFANT FORMULA IN ASIAN COUNTRIES In terms of Asian countries, China is one of the world’s largest importers of milk powder (including infant formula). However, China has onerous food standards and trade barriers for infant formula (contained in the Chinese regulatory framework). Accordingly, the Company has sought to comply with the Chinese standards as being the benchmark for export to the Asian markets (including Singapore and Hong Kong). Food cannot be imported into China unless the foreign manufacturer is registered by the General Administration of Quality Supervision Inspection and Quarantine of the People’s Republic of China (AQSIQ). In China, manufacturers of infant formula are subject to even stricter accreditation for the registration process. In particular, exports of Australian made infant formula to China that are over 10 kg (or 10 litres liquid) must be sourced from manufacturers accredited by the CNCA (a CNCA accredited manufacturer). As at the date of this Prospectus, there are only 8 Australian manufacturers which are registered with the CNCA for the manufacture of infant formula. While WHA is not a manufacturer, it has worked with and sourced its WHA Export Infant Formula Stage 1, 2 and 3 from a CNCA accredited manufacturer Blend and Pack. The regulatory environment which applies to infant formula and dairy products sold in China is evolving and is subject to change.
  28. 28. 3. Industry Overview 26 On 6 June 2016, the China Food and Drug Administration (CFDA) announced regulatory changes aimed at reducing the number of infant formula brands sold in China. Under the regulatory changes, the formulas of all infant formula products manufactured and/or sold in China must be registered with the CFDA. If the infant formula brand is not registered with the CFDA, it cannot be sold in China. Additionally, each manufacturer of infant formula can only register up to three brands and nine different products with the CFDA. The CFDA registration requirement became effective on 1 October 2016. However, the CFDA has granted a transition period to allow manufacturers to adapt to the new regulatory changes. In this regard, all manufacturers of infant formula will be required to comply with the new requirements by 1 January 2018. Please see section 7.2(h) of this Prospectus which outlines the risks associated with regulatory changes in particular the upcoming change with respect to the CFDA registration. (C) REGULATION FOR THE IMPORTATION OF INFANT FORMULA INTO MAINLAND CHINA (I) INSPECTION OF INFANT FORMULA AQSIQ attaches great importance to the safety and quality of imported infant formula including supervising the testing and inspection of each batch of infant formula imported in China. Infant formula is subject to inspections by the China CIQ which is a branch of AQSIQ. This can be a complicated, time consuming, costly and a challenging process. Additionally, infant formula must meet the Chinese GB Standards. WHA’s Export Infant Formula Stage 1, 2 and 3 is currently China CIQ registered (as at the date of this Prospectus) and meets Chinese GB Standards. For further information about WHA’s China CIQ registration (and the associated risks), please see section 7.2 of this Prospectus. (II) IMPORTATION OF INFANT FORMULA INTO CHINA Importation of infant formula into China is very complex and subject to stringent licensing requirements. In this regard, only licensed importers have the right to import infant formula into China. As such, it is not uncommon for infant formula manufacturers, distributors and product developers to export their products into China through intermediaries including import agents. For further information on WHA’s logistics and clearance arrangements in China please see section 9.6 of this Prospectus. (III) “GREY CHANNEL” An alternative path for importation has been the “grey channel” where the relevant goods are taken into China through an unapproved path (for example a consumer carrying product into China). The Chinese Government has tightened its control on the “grey channel” by imposing taxes. These taxes have been implemented to restrict market opportunities and revenue generation for foreign companies currently and planning to market through the “grey channel”.
  29. 29. 27 Board and Management 4.
  30. 30. 28 4. Board and Management 4.1 BOARD MEMBERS • Lazarus Karasavvidis – Co-founder, Executive Chairman and Chief Executive Officer: Lazarus Karasavvidis has over 15 years business experience in Australia and Asia. Lazarus co-founded the business Skillup Australia which was, a successful Australian training and recruitment organisation for a ten plus year tenure in a high level management position. This business was involved in Lean Manufacturing Six Sigma workplace improvement training programs, across a number of industries including Food, Health, Logistics, Business Services and Manufacturing. Lazarus has also co-founded a consulting services business in Laos, which has two divisions concentrating on unexploded ordnance (UXO) and Biomass. Since 2011, Lazarus has co-founded Wattle Health focusing on regulatory compliance within Australia and China, developing the Company’s product range and increasing brand awareness. • Eric Jiang – Independent Non-Executive Director: With over 15 years’ experience, Eric Jiang is an adviser to companies involved in trade between Australia and China. Eric brings a distinctive understanding of the cultural, economic and strategic context in which Australian businesses engage with China. Eric is currently an executive director of Connexion Media Limited (ASX:CXZ) and Perpetual Resources Limited (ASX:PEC) and non-executive director of Wingara AG Limited (ASX:WNR). Eric Jiang is an independent director as in the Board’s view he is free from any business or other relationship that could materially interfere with or reasonably be perceived to materially interfere with the independent exercise of his judgement. • Peter Biantes – Independent Non-Executive Director: Peter Biantes is a qualified CPA with over 40 years’ experience. He was also a former owner, director, finance director and company secretary of Lemnos Foods Pty Ltd. Lemnos Foods Pty Ltd started as a small business and developed into a major dairy goods supplier. Peter Biantes is an independent director as in the Board’s view he is free from any business or other relationship that could materially interfere with or reasonably be perceived to materially interfere with the independent exercise of his judgement. 4.2 COMPANY SECRETARY • George Karafotias – Company Secretary Finance Manager: George Karafotias completed a Bachelor of Commerce degree at the University of Adelaide. George has over 5 years’ experience in providing company secretarial services to a number of ASX listed entities. George is currently the company secretary of an ASX listed company, Connexion Media Limited (ASX:CXZ) and was previously the company secretary of Wingara AG Limited (ASX: WNR). 4.3 THE TEAM • Martin Glenister – Co-founder Director of Sales: Martin Glenister has over 20 years’ sales and management experience building high performing teams in public and private companies in Australia and South East Asia. Since 2010, Martin has co-founded and actively chaired companies in Australia and South East Asia, building revenue streams in emerging markets, focusing on agribusiness and Australian exports. • Mark McCammon – Vice President Global Sales: Mark McCammon has 25 years’ experience working as a consultant, general manager, director and business owner. Mark has built his reputation based on the overriding principles of trust, co-operation and a commitment to providing holistic quality solutions. As the National Aged Disability Manager for aged care at McArthur Proprietary Services Pty Ltd, Mark’s primary objective was to build relationships with government and private aged care bodies across Australia. • Angela Coppola – Finance and Administration Executive: Angela Coppola has over 25 years’ of accounting and administration experience. Working as an Accountant and Practice Manager with Chartered Accountants, has provided insights into ensuring businesses have correct internal systems and protocols. In the last 15 years, Angela has been a business owner, providing services to many small to medium business. These services have included setting up internal processes and accounting systems which enable the business to correctly report and provide timely and accurate internal reports as well as ensuring that the business meets its statutory obligations. • Yvette Yifang Wang – Client engagement specialist: Yvette Yifang Wang is highly experienced in Chinese business relations having worked with the Consulate for the General of the People’s Republic of China for a number of years. Yvette’s rich knowledge about the market in China spans from financial, business relations and marketing experience.
  31. 31. Wattle Health Australia Limited Replacement Prospectus 29 4.4 REMUNERATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL AS AT THE DATE OF THIS PROSPECTUS POSITION ANNUAL REMUNERATION (INCLUSIVE OF SUPERANNUATION) Lazarus Karasavvidis Executive Chairman and Chief Executive Officer $602,250* Eric Jiang** Non-Executive Director $52,000 Peter Biantes Non-Executive Director $52,000 Martin Glenister Sales Executive $383,250* * Lazarus Karasavvidis and Martin Glenister jointly hold 34,014,734 Shares in the Company. For further information see sections 9.9 and 9.10. ** Eric Jiang currently holds 1,872,371 Shares in the Company. For further information see section 9.9.
  32. 32. 30 Financial Information 5.
  33. 33. Wattle Health Australia Limited Replacement Prospectus 31 5. Financial Information The following information has been taken from the Company’s audited financial statements and related reports. Please note that while the Company’s audited financial statements and reports referred to the principal activities of the Company as being: • Manufacture of therapeutic health care products; • Manufacture of organic baby skin care range; • Manufacture of organic baby food range; • Manufacture of full dairy range as well as a number of specialist products, the Company currently outsources all of its manufacturing requirements and the Company’s principal activities do not include the manufacture of an organic baby skin care range or an organic baby food range (as referred to in the Company’s prior audited financial statements and related reports). Accordingly any reference to “manufacturing” or to an “organic baby skin care range” or “organic baby food range” as a principal activity of the Company in such financial reports is a reference to product concepts only. To date such product concepts have not been advanced and may never be advanced to a stage of a product formulation/ product suitable for sale. Investors should rely only upon the outline of the Company’s activities as detailed in this Prospectus. STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 4 months ended Oct 2016 $ (audited) 12 months ended June 2016 $ (audited) 12 months ended June 2015 $ (audited) 12 months ended June 2014 $ (audited) REVENUE 771,255 9,978 1,506 455,013 COST OF SALES (572,075) (13,616) (25,393) (421,163) GROSS PROFIT/(LOSS) 199,180 (3,638) (23,887) 33,850 EXPENSES General and Administrative Expenses (611,083) (368,425) (233,063) (103,498) Selling and Marketing Costs (348,735) – – – OPERATING LOSS BEFORE FINANCE, AMORTISATION CORPORATE ADVISORY COSTS (760,638) (372,063) (256,950) (69,648) Amortisation (15,913) (7,841) (7,841) (5,084) Finance Costs (80,213) (155,682) (86,278) (83,266) Corporate Advisory Costs (842,233) – – – OPERATING LOSS (1,698,997) (535,586) (351,069) (157,998) Foreign Exchange Gain/(Losses) – – (9) 19,781 Export Market Development Grant – – 34,787 55,215 Fair Value Gain/(Losses) on Investment – – – (75,138) LOSS BEFORE INCOME TAX EXPENSE (1,698,997) (535,586) (316,291) (158,140) Income Tax Expense – – – – LOSS AFTER INCOME TAX EXPENSE FOR THE YEAR (1,698,997) (535,586) (316,291) (158,140) Other Comprehensive Income for the Year, Net of Tax – – – – TOTAL COMPREHENSIVE LOSS FOR THE YEAR (1,698,997) (535,586) (316,291) (158,140)
  34. 34. 5. Financial Information 32 STATEMENTS OF FINANCIAL POSITION Oct 2016 $ (audited) June 2016 $ (audited) June 2015 $ (audited) June 2014 $ (audited) ASSETS CURRENT ASSETS Cash and Cash Equivalents 1,635,321 2,398,907 40,182 6,327 Trade and Other Receivables 370,693 19,075 15,818 45,849 Prepayments 5,838 399,105 186,625 217,173 Inventory 733,075 360,844 – – Investment in Sustainable Soils Farms 125,244 125,244 125,244 125,244 TOTAL CURRENT ASSETS 2,870,171 3,303,175 367,869 394,593 NON-CURRENT ASSETS Non-Current Receivables 17,428 – – – Plant and Equipment 8,642 – – – Intangible Assets 42,927 45,541 40,768 32,959 TOTAL NON-CURRENT ASSETS 68,997 45,541 40,768 32,959 TOTAL ASSETS 2,939,168 3,348,716 408,637 427,552 LIABILITIES CURRENT LIABILITIES Trade and Other Payables 331,214 46,634 136,112 130,062 Superannuation Payable 21,945 – – – Provisions 27,239 – – – Related Party Borrowings – 2,468,327 1,329,137 1,037,811 Convertible Notes 2,489,390 – – – TOTAL CURRENT LIABILITIES 2,869,788 2,514,961 1,465,249 1,167,873 NON-CURRENT LIABILITIES Convertible Notes – 2,425,953 – – Provisions 17,428 – – – TOTAL NON-CURRENT LIABILITIES 17,428 2,425,953 – – TOTAL LIABILITIES 2,887,216 4,940,914 1,465,249 1,167,873 NET (DEFICIENCY) OF ASSETS 51,952 (1,592,198) (1,056,612) (740,321) EQUITY Issued Capital 3,338,556 2,000 2,000 2,000 Share-Based Payment Reserve 6,591 – – – Accumulated Losses (3,293,195) (1,594,198) (1,058,612) (742,321) TOTAL EQUITY 51,952 (1,592,198) (1,056,612) (740,321)
  35. 35. Wattle Health Australia Limited Replacement Prospectus 33 STATEMENTS OF CHANGES IN EQUITY Issued Capital $ (audited) Share-based reserve $ (audited) Accumulated Losses $ (audited) Total (Deficiency) in Equity $ (audited) Balance at 1 July 2013 2,000 – (584,181) (582,181) Total Comprehensive loss for the Year Ended 30 June 2014 – – (158,140) (158,140) BALANCE AT 30 JUNE 2014 2,000 – (742,321) (740,321) Total Comprehensive loss for the Year Ended 30 June 2015 – – (316,291) (316,291) BALANCE AT 30 JUNE 2015 2,000 – (1,058,612) (1,056,612) Total Comprehensive loss for The Year Ended 30 June 2016 – – (535,586) (535,586) BALANCE AT 30 JUNE 2016 2,000 – (1,594,198) (1,592,198) Total Comprehensive loss for the 4 month period ended 30 June 2016 – – (1,698,997) (1,698,997) Contributions of equity, net of transaction costs 2,494,323 – – 2,494,323 Share-Based payments 842,233 6,591 – 848,824 BALANCE AT 31 OCTOBER 2016 3,338,556 6,591 (3,293,195) 51,952
  36. 36. 5. Financial Information 34 STATEMENTS OF CASH FLOWS 4 months Oct 2016 $ (audited) 12 months June 2016 $ (audited) 12 months June 2015 $ (audited) 12 months June 2014 $ (audited) CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers 419,637 9,978 31,528 527,470 Payments to Suppliers and Employees (1,172,421) (650,613) (194,225) (380,043) Proceeds from Government Grants – – 34,787 55,215 NET CASH USED IN OPERATING ACTIVITIES (752,784) (640,635) (127,910) 202,642 CASH FLOWS USED IN INVESTING ACTIVITIES Payments for Trademarks, Licenses and Patents – (12,615) (15,650) (27,576) Purchase of Plant and Equipment (10,802) – – – NET CASH USED IN INVESTING ACTIVITIES (10,802) (12,615) (15,650) (27,576) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Borrowings from Related Parties – 592,500 193,000 146,500 Repayment of Borrowings from Related Parties – (80,525) (15,585) (324,483) Proceeds from the Issue of Convertible Notes – 2,500,000 – – NET CASH FROM/(USED IN) FINANCING ACTIVITIES – 3,011,975 177,415 (177,983) NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (763,586) 2,358,725 33,855 (2,917) Cash and Cash Equivalents at the Beginning of the Financial Year 2,398,907 40,182 6,327 9,244 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR/PERIOD 1,635,321 2,398,907 40,182 6,327
  37. 37. Wattle Health Australia Limited Replacement Prospectus 35 PRO-FORMA STATEMENTS OF FINANCIAL POSITION Note 31 Oct 2016 $AUD audited Pro-forma $6m minimum subscriptions Pro-forma $7m target subscriptions Pro-forma $8m maximum subscriptions Cash and Cash Equivalents 4a) 1,635,321 6,946,573 7.876,573 8.806,573 Trade and Other Receivables 370,693 370,693 370,693 370,693 Prepayments 5,838 5,838 5,838 5,838 Inventories 733,075 733,075 733,075 733,075 Investment in Sustainable Soils Farms 125,244 125,244 125,244 125,244 TOTAL CURRENT ASSETS 2,870,171 8,181,423 9,111,423 10,041,423 Non-Current Receivables 17,428 17,428 17,428 17,428 Plant and Equipment 8,642 8,642 8,642 8,642 Intangible Assets 42,927 42,927 42,927 42,927 TOTAL NON-CURRENT ASSETS 68,997 68,997 68,997 68,997 TOTAL ASSETS 2,939,168 8,250,420 9,180,420 10,110,420 Trade and Other Payables 331,214 331,214 331,214 331,214 Superannuation Payable 21,945 21,945 21,945 21,945 Provisions 27,239 27,239 27,239 27,239 Convertible Notes 3e) 2,489,390 – – – CURRENT LIABILITIES 2,869,788 380,398 380,398 380,398 Non-Current Provisions 17,428 17,428 17,428 17,428 TOTAL NON-CURRENT LIABILITIES 17,428 17,428 17,428 17,428 TOTAL LIABILITIES 2,887,216 397,826 397,826 397,826 NET ASSETS 51,952 7,852,594 8,782,594 9,712,594 Issued Capital 4b) 3,338,556 11,207,946 12,137,946 13,067,946 Share-Based Payments Reserve 3a) 6,591 6,064 6,064 6,064 Accumulated Losses (3,293,195) (3,361,416) (3,361,416) (3,361,416) TOTAL EQUITY 51,952 7,852,594 8,782,594 9,712,594
  38. 38. 5. Financial Information 36 NOTES TO THE FINANCIAL INFORMATION These are the financial statements of Wattle Health Australia Limited (the “company”) which is incorporated and domiciled in Australia and its controlled entity, being the partnership of the LLEA LK Family Trust and the Williams Family Trust (together, the “consolidated entity”). NOTE 1 BASIS OF PREPARATION This financial information has been prepared on an accruals basis and is based on historical costs, applying the going concern basis of accounting. All amounts are presented in Australian dollars, unless otherwise noted. GOING CONCERN The audited historical financial information which is presented in this Financial Information is presented on a going concern basis of accounting. This going concern basis of accounting formed a basis for the independent auditor’s emphasis of matter paragraph which was included in the independent auditor’s unqualified reports to the general purpose financial statements of the Group for the years ended 30 June 2014, 30 June 2015 and 30 June 2016 and the 4 month period ended 31 October 2016. The following statements were made in those financial statements regarding the going concern basis of accounting which are still relevant to the audited historical financial information prepared for this Prospectus: This financial information has been prepared on a going concern basis, notwithstanding the fact that for the 4 months ended 31 October 2016, the Group generated a loss after tax of $1,698,997 and incurred net cash outflows from operations of $752,784. These conditions indicate a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern. The directors believe that it is appropriate to prepare the accompanying financial information on a going concern basis for the following reasons: • A capital raising in the form of an initial public offering is expected to occur in the first half of calendar 2017 to raise between $6m and $8m; • In October 2016 the Group had available cash reserves of $1,635,321, principally attributable to the issue of $2.5m unsecured convertible notes issued in June with 6% interest and an entitlement to convert those notes upon a liquidity event at a price of 80% of the listing price of the company’s ordinary shares as at the date of conversion. The directors expect that the notes will convert into shares when the initial public offering occurs however in the event the company does not list within 24 months from the date the notes were issued, the directors expect to extend the maturity of the notes beyond June 2018. • In addition to this on 12 August 2016 the Group issued shares in order to repay its shareholder loans, which at 12 August 2016 had a value, including accrued interest of $2,494,323; and • The cash flow forecast anticipates increased revenue from sales of goods and control of costs, as and where appropriate. For these reasons, the Directors believe that the assumption of a going concern basis in the preparation of this financial information is appropriate. The financial statements do not include any adjustments in relation to the recoverability or classification of recorded assets, nor the amounts or classification of liabilities that might be necessary should the Group not be able to continue as a going concern. NOTE 2 SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, deposits held at call with banks, other and short-term highly liquid investments with original maturities of three months or less. LOANS AND RECEIVABLES Loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as “loans and receivables”. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
  39. 39. Wattle Health Australia Limited Replacement Prospectus 37 INVENTORIES Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value on a ‘first in first out’ basis. Cost comprises direct materials and delivery costs, direct labour, import duties and other taxes, an appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity, and, where applicable, transfers from cash flow hedging reserves in equity. Costs of purchased inventory are determined after deducting rebates and discounts received or receivable. Stock in transit is stated at the lower of cost and net realisable value. Cost comprises purchase and delivery costs, net of rebates and discounts received or receivable. Net realisable 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. FINANCIAL ASSETS Investments in unlisted equity securities with less than a significant interest in the voting rights and power in the investee are held at fair value, with any changes in fair value taken to the profit or loss. Fair value is calculated with reference to the price of the latest arms-length seed capital price of the investee. INTANGIBLE ASSETS Trademarks and licenses acquired are initially recognized at cost and are subsequently carried at cost less accumulated amortisation and accumulated impairment losses. These costs are amortized to profit or loss using the straight-line method over 10 to 20 years, which is the shorter of their estimated useful lives and/or period of contractual rights. TRADE AND OTHER PAYABLES Trade payables and other payables are carried at amortised cost and represent liabilities for goods and services provided prior to the end of the period that are unpaid and arise when there is an obligation to make future payments in respect of the purchase of these goods and services. CONVERTIBLE NOTES Convertible notes are recognised when the Group is contractually bound to the instrument. Convertible notes where the option to convert to equity is in the hands of the note holder are classified as a liability in the statement of financial position and following initial recognition at fair value are accounted for at amortised cost. Convertible notes where the option to convert to equity is at the discretion of the Group are classified into their debt fair value, with the residual fair value in equity. Where there is no reliable fair value for the debt component, due to a lack of a deep and liquid market for similar debt instruments in the market, all of the convertible note is recorded as a liability at transaction date value and then subsequently measured at amortised cost. OTHER FINANCIAL LIABILITIES Financial liabilities are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method. Any financial liability that includes an equity conversion feature is classified as a financial liability where a contractual obligation exists, enforceable at the discretion of the counterparty, to settle the liability with cash or a variable amount of equity instruments that may be issued by the company as consideration. FOREIGN CURRENCY TRANSLATION AND BALANCES The functional currency of each entity is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the Group’s functional and presentation currency. Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when the fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the statement of comprehensive income, except where deferred in equity as a qualifying cash flow or net investment hedge.

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