We have reported net losses of $ 5,781,179 from the date of inception through April 30, 2016 . We have not realized adequate revenue in order to support our operations. We expect to continue to incur net losses and negative cash flow from operations in the near future, and we will continue to experience losses for at least as long as it takes our company to generate adequate revenue by selling our distilled spirits. The size of these losses will depend, in large part, on whether we fully develop the distilled spirits industries, with a focus on the Vodka segment, in a profitable manner. To date, we have had only limited operating revenues. There can be no assurance that we will achieve material revenues in the future. Should we achieve a level of revenues that make us profitable, there is no assurance that we can maintain or increase profitability levels in the future.
The following factors raise substantial doubt regarding the ability of our business to continue as a going concern: (i) the losses we incurred since our inception; (ii) our lack of significant operating revenues since inception through the date of this prospectus; and (iii) our dependence on the sale of equity or debt securities to continue in operation. We therefore expect to incur significant losses in the foreseeable future. The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue our business. If we are unable to obtain additional financing from outside sources and eventually produce enough revenues, we may be forced to curtail or cease our operations. If this happens, you could lose all or part of your investment.
We do not have any substantial operating history, which makes it impossible to evaluate our business on the basis of historical operations. Our business carries both known and unknown risks. As a consequence, our past results may not be indicative of future results. Although this is true for any business, it is particularly true for us because of our lacking any profitable operating history.
From time to time, we may attempt to acquire or invest in additional brands or businesses. We expect to continue to seek acquisition and investment opportunities that we believe will increase long-term shareholder value, but we may not be able to find and purchase brands or businesses at acceptable prices and terms. Acquisitions involve risks and uncertainties, including potential difficulties integrating acquired brands and personnel; the possible loss of key customers or employees most knowledgeable about the acquired business; implementing and maintaining consistent U.S. public company standards, controls, procedures, policies, and information systems; exposure to unknown liabilities; business disruption; and management distraction. Acquisitions, investments, or joint ventures could also lead us to incur additional debt and related interest expenses, issue additional shares, and become exposed to contingent liabilities, as well as lead to dilution in our earnings per share and reduction in our return on average invested capital. We could incur future restructuring charges or record impairment losses on the value of goodwill or other intangible assets resulting from previous acquisitions, which may also negatively affect our financial results.
We also evaluate from time to time the potential disposition of assets or businesses that may no longer meet our growth, return, or strategic objectives. In selling assets or businesses, we may not get prices or terms as favorable as we anticipated. We could also encounter difficulty in finding buyers on acceptable terms in a timely manner, which could delay our accomplishment of strategic objectives. Expected cost savings from reduced overhead relating to the sold assets may not materialize, and the overhead reductions could temporarily disrupt our other business operations. Any of these outcomes could negatively affect our financial performance.
We recently underwent changes in management, and the current management has no experience in managing a public company prior to joining the Company.
We underwent changes in management January 1, 2013 and December 31, 2015. While Mr. Less has prior business experience in the distribution of distilled spirits and alcoholic beverages before joining the Company, he does not have experience in managing a public company.
One of our stockholders has the ability to significantly influence any matters to be decided by the stockholders, which may prevent or delay a change in control of our company.
Bloise International Corp. currently owns approximately 30% of our common stock and 100% of our Series E preferred stock
.
As holder of the Series E preferred stock Bloise International Corp. is entitled, voting separately as a single class, to vote double the number of all other voting share resulting in 2/3rds of all votes. As a result, it could exert considerable influence over the outcome of any corporate matter submitted to our stockholders for approval, including the election of directors and any transaction that might cause a change in control, such as a merger or acquisition. Any stockholders in favor of a matter that is opposed by this stockholder cannot overrule the vote of Bloise International Corp.
Chris Less is our sole director and officer and the loss of Mr. Less could adversely affect our business.
Since Mr. Less is currently our sole director and officer, if he were to die, become disabled, or leave our company, we would be forced to retain individuals to replace him. There is no assurance that we can find suitable persons to replace him if that becomes necessary. We have no “Key Man” life insurance at this time.
Risks Relating to our Alcoholic Beverage Business
National and local governments may adopt regulations or undertake investigations that could limit our business activities or increase our costs.
Our business is subject to extensive regulatory requirements regarding production, marketing and promotion, labeling, distribution, pricing, and trade practices, among others. Changes in laws, regulatory measures, or governmental policies, or in the manner in which current ones are interpreted, could cause us to incur material additional costs or liabilities, and jeopardize the continued existence or growth of our business in the affected market. Specifically, governments may prohibit, or impose or increase limitations on, advertising and promotional activities, or adopt other measures that could limit our opportunities to reach consumers or sell our products. Increases in regulation of this nature could substantially reduce consumer awareness for our products in the affected markets.
Changes in consumer preferences and purchases, and our ability to anticipate and react to them, could negatively affect our business results.
We are a branded consumer products company in a highly competitive market, and our success depends on our continued ability to offer consumers appealing, high-quality products. Consumer preferences and purchases may shift due to a host of factors, many of which are difficult to predict, including changes in economic conditions, demographic and social trends, public health policies and initiatives, changes in government regulation of beverage alcohol products and changes in travel, leisure, dining, gifting, entertaining, and beverage consumption trends. To continue to succeed, we must anticipate and respond effectively to shifts in demographics, consumer behavior, drinking tastes, and drinking occasions. Our business results could be negatively affected by shifts in demographic trends, specifically in the United States. Further, trends in the United States for several years after 2014 indicate a slight decrease in the population segment aged 21 to 24; fewer potential consumers in this age bracket could have a negative effect on industry growth rates and our business.
Production facility disruption could adversely affect our business.
Our largest brand, RWB Vodka, is produced at a single location. A catastrophic event causing physical damage, disruption, or failure at our major distillation or bottling facilities could adversely affect our business. A consequence of any of these or other supply or supply chain disruptions could be our inability to meet consumer demand for the affected products for a period of time. In addition, insurance proceeds may be insufficient to cover the replacement value of our inventory of maturing products and other assets if they were to be lost. Disaster recovery plans may not prevent business disruption, and reconstruction of any damaged facilities could require a significant amount of time.
- 4 -
The inherent uncertainty in supply/demand forecasting could adversely affect our business, particularly with respect to our aged products.
There is an inherent risk of forecasting imprecision in determining the quantity of aged and maturing products to store in a given year for future consumption. The forecasting strategies we use to balance product supply with fluctuations in consumer demand may not be effective for particular years, products, or markets. We cannot be sure that we will be successful in using various levers, such as price, to create the desired balance of available supply and consumer demand for particular years, products, or markets. As a consequence, we may be unable to meet consumer demand for the affected products for a period of time. Furthermore, not having our products in the market on a consistent basis may adversely affect our brand equity and future sales.
Higher costs or unavailability of materials could adversely affect our financial results, as could our inability to obtain certain finished goods.
Our products use a number of materials and ingredients that we purchase from suppliers. Our ability to make and sell our products depends upon the availability of the raw materials, product ingredients, finished products, wood, glass, bottles, bottle closures, packaging, and other materials used to produce and package them. Without sufficient quantities of one or more key materials, our operations and financial results could suffer. For instance, only a few glass producers make bottles on a scale sufficient for our requirements, and a single producer supplies most of our glass requirements. If any of our key suppliers were no longer able to meet our timing, quality, or capacity requirements, ceased doing business with us, or raised prices, and we could not promptly develop alternative cost-effective sources of supply or production, our operations and financial results could suffer.
Higher costs or insufficient availability of suitable raw materials, including potatoes, grain, water, glass, closures, and other input materials, or higher associated labor costs or insufficient availability of labor, may adversely affect our financial results, because we may not be able to pass along such cost increases or the cost of such shortages through higher prices to customers. Similarly, when energy costs rise, our transportation, freight, and other operating costs, such as distilling and bottling expenses, also may increase. Our financial results may be adversely affected if we are not able to pass along energy cost increases through higher prices to our customers without reducing demand or sales.
Weather, the effects of climate change, diseases, and other agricultural uncertainties that affect the mortality, health, yield, quality, or price of the various raw materials used in our products also present risks for our business, including in some cases potential impairment in the recorded value of our inventory. Changes in weather patterns or intensity can disrupt our supply chain as well, which may affect production operations, insurance costs and coverage, as well as the timely delivery of our products to customers.
Water is one of the major components of our products, so the quality and quantity of available water is important to our ability to operate our business. If hydrologic cycle patterns change, and droughts become more common or severe, or if the water supply were interrupted for other reasons, high-quality water could become scarce in some key production regions for our products.
If the social acceptability of our products declines or governments adopt policies disadvantageous to beverage alcohol, our business could be adversely affected.
Our ability to market and sell our products depends heavily on societal attitudes toward drinking and governmental policies that both flow from and affect those attitudes. In recent years, increased social and political attention has been directed at the beverage alcohol industry. The recent attention has focused largely on public health concerns related to alcohol abuse, including drunk driving, underage drinking, and the negative health impacts of the abuse and misuse of beverage alcohol. While most people who drink enjoy alcoholic beverages in moderation, it is commonly known and well reported that excessive levels or inappropriate patterns of drinking can lead to increased risk of a range of health conditions and, for certain people, can result in alcohol dependence. Some academics and public health officials as well as critics of the alcohol industry in the United States, Europe, and other countries around the world increasingly seek governmental measures to make beverage alcohol products more expensive, less available, or more difficult to advertise and promote. For example, the World Health Organization recently published a report on alcohol and its associated health risks and impacts, and encouraged governments to develop specific regulatory policies to reduce the harmful use of alcohol. If future research indicated more widespread serious health risks associated with alcohol consumption – particularly with moderate consumption – or if for any reason the social acceptability of beverage alcohol were to decline significantly, sales of our products could decrease.
We face substantial competition in our industry, and consolidation among beverage alcohol producers, wholesalers, or retailers, or changes to our route-to-consumer model, could hinder the marketing, sale, or distribution of our products.
- 5 -
We use different business models to market and distribute our products in North America. In the United States, we sell our products either to distributors for resale to retail outlets, directly to retail outlets or, in those states that control alcohol sales, to state governments who then sell them to retail customers and consumers. Consolidation among spirits producers, distributors, wholesalers, or retailers could create a more challenging competitive landscape for our products. Consolidation at any level could hinder the distribution and sale of our products as a result of reduced attention and resources allocated to our brands both during and after transition periods, because our brands might represent a smaller portion of the new business portfolio. Expansion into new product categories by other suppliers, or innovation by new entrants into the market, could increase competition in our product categories. Changes to our route-to-consumer models or partners in important markets could result in temporary or longer-term sales disruption, could result in higher implementation-related or fixed costs, and could negatively affect other business relationships we might have with that partner. Distribution network disruption or fluctuations in our product inventory levels at distributors, wholesalers, or retailers could negatively affect our results for a particular period.
Our competitors may respond to industry and economic conditions more rapidly or effectively than we do. Other suppliers, as well as wholesalers and retailers of our brands, offer products that compete directly with ours for shelf space, promotional displays, and consumer purchases. Pricing (including price promotions, discounting, couponing, and free goods), marketing, new product introductions, entry into our distribution networks, and other competitive behavior by other suppliers, and by wholesalers and retailers who sell their products against ours, could adversely affect our sales, margins, and profitability. While we seek to take advantage of the efficiencies and opportunities that large retail customers can offer, large retail customers often seek lower pricing and purchase volume flexibility, offer own-label competing products, and represent a large number of other competing products. If their leverage continues to increase, it could negatively affect our financial results.
Our business operations may be adversely affected by social, political and economic conditions affecting market risks the demand for and pricing of our products. These risks include:
|
|
|
|
·
|
Unfavorable economic conditions, and related low consumer confidence, high unemployment, weak credit or capital markets, sovereign debt defaults, sequestrations, austerity measures, higher interest rates, political instability, higher inflation, deflation, lower returns on pension assets, or lower discount rates for pension obligations
|
|
·
|
Changes in laws, regulations, or policies – especially those that affect the production, importation, marketing, sale, or consumption of our beverage alcohol products
|
|
·
|
Tax rate changes (including excise, sales, VAT, tariffs, duties, corporate, individual income, dividends, capital gains) or changes in related reserves, changes in tax rules (for example, LIFO, foreign income deferral, U.S. manufacturing and other deductions) or accounting standards, and the unpredictability and suddenness with which they can occur
|
|
·
|
Dependence upon the continued growth of our family of brands
|
|
·
|
Changes in consumer preferences, consumption, or purchase patterns – particularly away from clear spirits, our premium products, or spirits generally, and our ability to anticipate and react to them; bar, restaurant, travel, or other on-premise declines; unfavorable consumer reaction to new products, line extensions, package changes, product reformulations, or other product innovation
|
|
·
|
Decline in the social acceptability of beverage alcohol products in significant markets
|
|
·
|
Production facility or supply chain disruption
|
|
·
|
Imprecision in supply/demand forecasting
|
|
·
|
Higher costs, lower quality, or unavailability of energy, input materials, labor, or finished goods
|
|
·
|
Route-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in higher implementation-related or fixed costs
|
|
·
|
Inventory fluctuations in our products by distributors, wholesalers, or retailers
|
|
·
|
Competitors’ consolidation or other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets or distribution networks
|
|
·
|
Risks associated with acquisitions, dispositions, business partnerships, or investments – such as acquisition integration, or termination difficulties or costs, or impairment in recorded value
|
|
·
|
Insufficient protection of our intellectual property rights
|
|
·
|
Product recalls or other product liability claims; product counterfeiting, tampering, or product quality issues
|
|
·
|
Significant legal disputes and proceedings; government investigations (particularly of industry or company business, trade or marketing practices)
|
|
·
|
Failure or breach of key information technology systems
|
|
·
|
Negative publicity related to our company, brands, marketing, personnel, operations, business performance, or prospects
|
|
·
|
Business disruption, decline, or costs related to organizational changes, reductions in workforce, or other cost-cutting measures, or our failure to attract or retain key executive or employee talent
|
- 6 -
We require substantial funds to produce and market our distilled spirits.
Development and marketing of our alcoholic beverages, including our signature RWB Vodka, depends upon the results of marketing programs, feasibility studies and the recommendations of qualified professionals. Such activities require substantial funding. Before deciding to produce and market distilled spirits, we must consider several significant factors, including, but not limited to:
|
|
|
|
·
|
Costs of bringing the products into production;
|
|
·
|
Availability and costs of financing;
|
|
·
|
Ongoing costs of production;
|
|
·
|
Market prices for the products to be produced;
|
|
·
|
Environmental compliance regulations and restraints; and
|
|
·
|
Political climate and/or governmental regulation and control.
|
Risks Related to Our Common Stock
We lack an established trading market for our common stock, and you may be unable to sell your common stock at attractive prices or at all.
There is currently a limited trading market for our common stock in the OTCQB under the symbol “ASCC.” There can be no assurances given that an established public market will be obtained for our common stock or that any public market will last. As a result, we cannot assure you that you will be able to sell your common stock at attractive prices or at all.
The market price for our common stock may be highly volatile.
The market price for our common stock may be highly volatile. A variety of factors may have a significant impact on the market price of our common stock, including:
|
|
|
|
·
|
the publication of earnings estimates or other research reports and speculation in the press or investment community;
|
|
·
|
changes in our industry and competitors;
|
|
·
|
our financial condition, results of operations and prospects;
|
|
·
|
any future issuances of our common stock, which may include primary offerings for cash, and the grant or exercise of stock options from time to time;
|
|
·
|
general market and economic conditions; and
|
|
·
|
any outbreak or escalation of hostilities, which could cause a recession or downturn in our economy.
|
We may be subject to shareholder litigation, thereby diverting our resources that may have a material effect on our profitability and results of operations.
As discussed in the preceding risk factors, the market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may become the target of similar litigation. Securities litigation will result in substantial costs and liabilities and will divert management’s attention and resources.
Our future sales of common stock by management and other stockholders may have an adverse effect on the then prevailing market price of our common stock.
In the event a public market for our common stock is sustained in the future, sales of our common stock may be made by holders of our public float or by holders of restricted securities in compliance with the provisions of Rule 144 of the Securities Act of 1933. In general, under Rule 144, a non-affiliated person who has satisfied a six-month holding period in a company registered under the Securities Exchange Act of 1934, as amended, may, sell their restricted common stock without volume limitation, so long as the issuer is current with all reports under the Exchange Act in order for there to be adequate common public information. Affiliated persons may also sell their common shares held for at least six months, but affiliated persons will be required to meet certain other requirements, including manner of sale, notice requirements and volume limitations. Non-affiliated persons who hold their common shares for at least one year will be able to sell their common stock without the need for there to be current public information in the hands of the public. Future sales of shares of our public float or by restricted common stock made in compliance with Rule 144 may have an adverse effect on the then prevailing market price, if any, of our common stock.
- 7 -
Lack of Independent Directors.
The Sarbanes-Oxley Act of 2002 requires us as a public corporation to have an audit committee composed solely of independent directors. Currently, we have no independent directors and lack an Audit Committee of the board of directors. Audit committee communications will have to go directly to board members and addressed with the board of directors. We can provide no assurances that we will be able to attract and maintain independent directors on our board or form an Audit Committee in compliance with Sarbanes-Oxley.
We do not expect to pay cash dividends in the foreseeable future.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. The declaration, payment and amount of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors our board of directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.
As a public company, we are subject to complex legal and accounting requirements that will require us to incur significant expenses and will expose us to risk of non-compliance.
As a public company, we are subject to numerous legal and accounting requirements that do not apply to private companies. The cost of compliance with many of these requirements is material, not only in absolute terms but, more importantly, in relation to the overall scope of the operations of a small company. Our relative inexperience with these requirements may increase the cost of compliance and may also increase the risk that we will fail to comply. Failure to comply with these requirements can have numerous adverse consequences including, but not limited to, our inability to file required periodic reports on a timely basis, loss of market confidence and/or governmental or private actions against us. We cannot assure you that we will be able to comply with all of these requirements or that the cost of such compliance will not prove to be a substantial competitive disadvantage vis-à-vis our privately held and larger public competitors.
Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses and pose challenges for our management.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act and SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the U.S. public markets. Our management team will need to devote significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.
We will need to raise substantial additional capital in the future to fund our operations and we may be unable to raise such funds when needed and on acceptable terms.
The extent to which we sell equity or debt securities as a source of funding will depend on a number of factors, including the prevailing market price of our common stock, the volume of trading in our common stock and the extent to which we are able to secure funds from other sources.
When we elect to raise additional funds or additional funds are required, we may raise such funds from time to time through public or private equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives. Additional equity or debt financing or corporate collaboration and licensing arrangements may not be available on acceptable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing acquisition, licensing, development and commercialization efforts and our ability to generate revenues and achieve or sustain profitability will be substantially harmed.
If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, which are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be
- 8 -
necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, our business, operating results, financial condition and prospects could be materially and adversely affected and we may be unable to continue our operations.
We are subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.
Our common stock is subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934 (the “Exchange Act”), commonly referred to as the “penny stock rule.” Section 15(g) sets forth certain requirements for transactions in penny stock, and Rule 15g-9(d) incorporates the definition of “penny stock” that is found in Rule 3a51-1 of the Exchange Act. The SEC generally defines a penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. We are subject to the SEC’s penny stock rules.
Since our common stock is deemed to be penny stock, trading in the shares of our common stock is subject to additional sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors. “Accredited investors” are persons with assets in excess of $1,000,000 (excluding the value of such person’s primary residence) or annual income exceeding $200,000 or $300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such security and must have the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt the rules require the delivery, prior to the first transaction of a risk disclosure document, prepared by the SEC, relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in an account and information to the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealer to trade and/or maintain a market in our common stock and may affect the ability of our stockholders to sell their shares of common stock.
There can be no assurance that our shares of common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock was exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock if the SEC finds that such a restriction would be in the public interest.
While we currently qualify as an “emerging growth company” under the Jumpstart of Business Startups Act of 2012, or the JOBS Act, when we lose that status the costs and demands placed upon our management will increase.
Once we become a publicly reporting company, we will continue to be deemed an emerging growth company until the earliest of (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion (as indexed for inflation); (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of common stock under this registration statement; (iii) the date on which we have, during the previous 3-year period, issued more than $1 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer, ” as defined by the Securities and Exchange Commission, which would generally occur upon our attaining a public float of at least $700 million. Once we lose emerging growth company status, we expect the costs and demands placed upon our management to increase, as we would have to comply with additional disclosure and accounting requirements, particularly if we would also no qualify as a smaller reporting company.
We are an “emerging growth company” and we cannot be certain that the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
The JOBS Act permits “emerging growth companies” like us, upon becoming a publicly-reporting company, to rely on some of the reduced disclosure requirements that are already available to smaller reporting companies. As long as we qualify as an emerging growth company or a smaller reporting company, we would be permitted to omit the auditor’s attestation on internal control over financial reporting that would otherwise be required by the Sarbanes-Oxley Act, as described above, and are also exempt from the requirement to submit “say-on-pay”, “say-on-pay frequency” and “say-on-parachute” votes to our stockholders and may avail ourselves of reduced executive compensation disclosure that is already available to smaller reporting companies.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
- 9 -
We will cease to be an emerging growth company at such time as described in the risk factor immediately above. Until such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile and could cause our stock price to decline.
Our common stock is subject to price volatility unrelated to our operations.
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or ourselves. In addition, the OTCQB is subject to extreme price and volume fluctuations in general. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
Trading in our common stock on the OTC Markets is limited and sporadic making it difficult for our shareholders to sell their shares or liquidate their investments.
Trading in our common stock is currently published on the OTC Markets. The trading price of our common stock has been subject to wide fluctuations. Trading prices of our common stock may fluctuate in response to a number of factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with no current business operation. There can be no assurance that trading prices and price earnings ratios previously experienced by our common stock will be matched or maintained. These broad market and industry factors may adversely affect the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of management’s attention and resources.
The issuance of our common stock to the selling stockholder may cause substantial dilution to our existing stockholders and the sale of the shares of common stock acquired by the selling stockholder could cause the price of our common stock to decline.
We are registering for sale 590,000 shares that we may issue to the selling stockholder. It is anticipated that shares registered in this offering will be sold over a period of up to approximately twelve months from the date of this prospectus. The number of shares ultimately offered for sale by the selling stockholder under this prospectus is dependent upon the number of shares the selling stockholder elects to convert from the convertible promissory note. Depending upon market liquidity at the time, sales of shares of our common stock issued upon conversion of the promissory note may cause the trading price of our common stock to decline.
The selling stockholder may sell all, some or none of our shares that it holds or comes to hold upon conversion of the promissory note. Sales by the selling stockholder of shares acquired upon conversion of the promissory note and sold under the registration statement, of which this prospectus is a part, may result in dilution to the interests of other holders of our common stock. The sale of a substantial number of shares of our common stock by the selling stockholder in this offering, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
We are registering 590,000 shares of common stock to be issued upon conversion of the promissory note. The sales of such shares could depress the market price of our common stock.
We are registering 590,000 shares of common stock under the registration statement of which this prospectus is a part, pursuant to the registration rights agreement with the selling stockholder. Notwithstanding the selling stockholder’s ownership limitation, the 590,000 shares will represent approximately 23.04% of our shares of common stock held by nonaffiliated shareholders immediately after issuance of the shares upon conversion of the promissory note. The sale of these shares into the public market by the selling stockholder could depress the market price of our common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements. When used in this prospectus or in any other presentation, statements which are not historical in nature, including the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” “may,” “project,” “plan” or “continue,” and similar expressions are intended to identify forward-looking statements. They also include statements containing a projection of revenues, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.
- 10 -
The forward-looking statements in this prospectus are based upon our management’s beliefs, assumptions and expectations of our future operations and economic performance, taking into account the information currently available to them. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. These forward-looking statements are based on our current plans and expectations and are subject to a number of uncertainties and risks that could significantly affect current plans and expectations and our future financial condition and results.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. We qualify any and all of our forward-looking statements entirely by these cautionary factors. As a consequence, current plans, anticipated actions and future financial conditions and results may differ from those expressed in any forward-looking statements made by or on our behalf. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented herein.
USE OF PROCEEDS
The selling stockholder will receive all of the proceeds from the sale of their shares offered by them under this prospectus. We will not receive any proceeds from the sale of the shares sold by the selling stockholder. If all the registered shares are sold, our outstanding debt will be reduced by $5,990 .
DILUTION
The sale of our common stock issuable upon conversion of the promissory note will have a dilutive impact on our shareholders. As a result, our net loss per share could increase in future periods and the market price of our common stock could decline.
The sale of 345,000 shares of common stock included in this offering have already been reflected in the financial statements as of and for the period ended April 30, 2016. After giving effect to the sale in this offering of the remaining 245,000 shares of common stock at a conversion rate of $0.01 per share, our pro forma as adjusted net tangible book value as of April 30, 2016 would have been approximately $(1,545,394) , or $(0.39) per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $0.02 per share to our existing stockholders and an immediate dilution of $0.40 per share to our new shareholders.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Public Market for common stock
Our common stock began trading on the “Over the Counter” Bulletin Board (“OTC”) under the symbol “ASCC” in November 2015. The following table sets forth, for the period indicated, the prices of the common stock in the over-the-counter market, as reported and summarized by OTC Markets Group, Inc. These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual transactions. There is an absence of an established trading market for the Company’s common stock, as the market is limited, sporadic and highly volatile, which may affect the prices listed below.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
Fiscal Year Ended July 31, 2015
|
|
|
|
|
|
|
|
Quarter ended July 31, 2015
|
|
$
|
3.00
|
|
$
|
0.51
|
|
Quarter ended April 30, 2015
|
|
$
|
5.20
|
|
$
|
1.50
|
|
Quarter ended January 31, 2015
|
|
$
|
6.00
|
|
$
|
1.50
|
|
Quarter ended October 31, 2014
|
|
$
|
5.64
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended July 31, 2014
|
|
|
|
|
|
|
|
Quarter ended July 31, 2014
|
|
$
|
8.99
|
|
$
|
3.00
|
|
Quarter ended April 30, 2014
|
|
$
|
28.00
|
|
$
|
6.13
|
|
Quarter ended January 31, 2014
|
|
$
|
25.00
|
|
$
|
5.50
|
|
Quarter ended October 31, 2013
|
|
$
|
41.00
|
|
$
|
17.50
|
- 11 -
Holders
We had approximately 6 record holders of our common stock as of June 29, 2016 , according to the books of our transfer agent. The number of our stockholders of record excludes any estimate by us of the number of beneficial owners of shares held in street name, the accuracy of which cannot be guaranteed.
Dividends
There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. The Nevada Revised Statutes, however, does prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
|
|
|
|
·
|
we would not be able to pay our debts as they become due in the usual course of business; or
|
|
·
|
our total assets would be less than the sum of our total liabilities, plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
|
We have not declared any dividends and do not plan to declare any dividends in the foreseeable future.
Common Stock
We are authorized to issue 480,000,000 shares of common stock, with a par value of $0.001. The closing price of our common stock on June 29, 2016 , as quoted by OTC Markets Group, Inc., was $0.079 . There were 4,272,157 shares of common stock issued and outstanding as of June 29, 2016 . All shares of common stock have one vote per share on all matters including election of directors, without provision for cumulative voting. The common stock is not redeemable and has no conversion or preemptive rights. The common stock currently outstanding is validly issued, fully paid and non-assessable. In the event of liquidation of the Company, the holders of common stock will share equally in any balance of the Company’s assets available for distribution to them after satisfaction of creditors and preferred shareholders, if any. The holders of the Company’s common are entitled to equal dividends and distributions per share with respect to the common stock when, as and if, declared by the Board of Directors from funds legally available.
Our Articles of Incorporation, our Bylaws, and the applicable statutes of the state of Nevada contain a more complete description of the rights and liabilities of holders of our securities.
During the year ended July 31, 2015, there was no modification of any instruments defining the rights of holders of the Company’s common stock and no limitation or qualification of the rights evidenced by the Company’s common stock as a result of the issuance of any other class of securities or the modification thereof.
On April 17, 2015, our reincorporation from Florida to Nevada resulted in a one-for-100 reverse stock split. Each shareholder received one share in the Nevada corporation for every 100 shares he held in the Florida corporation. Fractional shares were rounded up to the nearest whole share, and each shareholder received at least five shares.
Preferred Stock
We are authorized to issue 20,000,000 shares of preferred stock. On June 12, 2015, the board of directors designated 1,000,000 shares of Series E preferred stock. The Series E preferred stock has a par value of $0.001 and ranks subordinate to the Company’s common stock. The outstanding shares of Series E preferred stock have the right to take action by written consent or vote based on the number of votes equal to twice the number of votes of all outstanding shares of capital stock. On the same date, the Company issued 1,000,000 shares of Series E preferred stock to Bloise International Corporation, a Panama corporation whose beneficial owner is Ilya Solodov (“Bloise”), for compensation in a control transaction. Prior to this transaction, Bloise owned 1,275,872 shares of common stock, or approximately 62%, of the Company.
Non-cumulative voting
Holders of shares of our common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our directors.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to continue to pursue our business plan or to undertake any expansion of our current business activities. For these reasons our auditors stated in their report that they have substantial doubt we will be able to continue as a going concern.
- 12 -
Off Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Critical Accounting Policies
Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 2 of the notes to our historical financial statements. We have identified and disclosed accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management.
DESCRIPTION OF BUSINESS
History and General Overview
We were incorporated in Florida on July 20, 2011.
On April 1, 2015, the Company reincorporated from Florida to Nevada. The Company’s board of directors and majority shareholder consented to the reincorporation. Each of our shareholders on the record date received one share of the Nevada company’s common stock for each 100 shares of common stock they own in the Florida company. Fractional shares were rounded up to the next whole share, and each shareholder received at least five shares. The Nevada company is authorized to issue 480 million shares of common stock and 20 million shares of preferred stock, each with a par value of $0.001 per share. The information contained herein gives retroactive effect to the stock split for all periods presented.
On February 3, 2015, our board of directors adopted the 2015 Omnibus Equity Incentive Plan.
On October 17, 2012, we formed Luxuria Brands LLC as a wholly owned subsidiary. On January 10, 2013, we formed Level Two Holdings, LLC as our wholly owned subsidiary. On January 15, 2013, we formed Top Shelf Distributing, LLC (“Top Shelf”) as our wholly owned subsidiary.
Top Shelf is focused on developing our distilled spirits line of business and currently markets and sells RWB Ultra Premium Handcrafted Vodka (“RWB Vodka”).
We are part of the distilled spirits sector that enables us to enter into a large diverse market with broad appeal and several similar supporting market segments, such as the spirit industry and the music industry. These two sectors present many original opportunities for partnership, sponsorship and brand awareness activities.
Our current project is developing Big Box Vodka, which we expect to launch in 2016. Big Box Vodka is distilled from Idaho winter wheat using a continuous, four-column process. It will feature innovative packaging designed for maximum convenience and portability, making the product the perfect choice for spirits consumers on the go.
We entered into a distribution agreement (the “Distribution Agreement”) with Texas Top Shelf, LLC, a Texas limited liability company (“Texas Top Shelf”), in December 2015. Texas Top Shelf is not related to our subsidiary, Top Shelf Distributing, LLC. It is an alcoholic beverage distributor with a strong logistical backbone nationwide. The Distribution Agreement will allow us to expand our brand presence in North America’s most active distilled spirits markets resulting in increased sales and lower delivery costs for our RWB Ultra Premium Handcrafted Vodka (“RWB Vodka”) and future brands.
We are licensed as a nonresident seller in the State of Texas and vigorously market and sell RWB Vodka to wholesalers through our wholly owned subsidiary, Top Shelf Distributing, LLC. RWB Ultra Premium Handcrafted Vodka is a potato-based gluten-free vodka, which is actively distributed throughout North America and sold by a growing number of retailers.
On October 17, 2012, we formed Luxuria Brands LLC as a wholly owned subsidiary responsible for creating and developing unique and marketable alcoholic products.
Our Top Shelf subsidiary is exclusively focused on developing our distilled spirits line of business and our Ultra Premium Handcrafted Vodka. Top Shelf was organized January 15, 2013.
- 13 -
Level Two Holdings, LLC was organized January 10, 2013 as a wholly owned subsidiary of Luxuria Brands to comply with the requirements of the Texas Alcoholic Beverage Commission, the regulator of distribution and sale of alcoholic beverages in Texas.
In 2013, we engaged the management services of K.M. Delaney & Associates, LLC, an independent consulting company (“KMDA”), to assist the Company with essential back office services such as bookkeeping, accounting, web design and SEC compliance. The agreement with KMDA was originally oral and renewed each year until 2015 when the annual renewal for 2015 and 2016 was in writing. On June 1, 2016, KMDA ceased to provide these services and we engaged Argyle Corporate Services, LLC (“Argyle”) to assist the Company with certain back office services. See “
Directors, Executive Officers and Corporate Governance
” for a more complete description of the services provided by KMDA and Argyle. A copy of our engagement agreements with KMDA and Argyle are filed as exhibits to the registration statement of which this prospectus is a part.
We were incorporated in Florida on July 20, 2011 and reincorporated from Florida to Nevada April 1, 2015.
In connection with our reincorporation from Florida to Nevada each of our shareholders on the record date received one share of the Nevada Company’s common stock for each 100 shares of common stock they owned in the Florida company. Fractional shares were rounded up to the next whole share, and each shareholder received a not less than five shares.
Our principal executive offices are located at 6671 South Las Vegas Boulevard, Suite 210, Las Vegas, Nevada 89119. Our telephone number is (702)761-6866. Our corporate website is www.aristocratgroupcorp.com. The information contained on, or accessible through, our website is not incorporated by reference into this prospectus and should not be considered a part of this prospectus.
Our fiscal year end is July 31.
Effective as of December 31, 2015, Chris Less was elected director, president, secretary, treasurer and chief executive officer to replace Robert Federowicz.
Plan of Operation
The Company is initially concentrating on the distilled spirits industry, with a focus on the Vodka segment. As a core direction, beverage alcohol marketing can be used as a platform to promote other business segments of the Company, such as event promotion. Vodka accounts for almost one quarter of all distilled spirits sales and continues to grow. Selecting the distilled spirits sector enables Aristocrat to enter into a large diverse market with broad appeal and several similar supporting categories, such as the spirit industry and the music industry. These two sectors are easily linkable and present many original opportunities for partnership, sponsorship and brand awareness activities.
Top Shelf currently markets and sells RWB Ultra Premium Handcrafted Vodka (“RWB Vodka”). RWB Vodka is a potato-based, gluten-free vodka which is currently distributed in North America and sold by a growing number of retailers.
The Company is currently developing Big Box Vodka, which is expected to be launched in 2016. Big Box Vodka is distilled from Idaho winter wheat using a continuous, four-column process. It will feature innovative packaging designed for maximum convenience and portability, making the product the perfect choice for spirits consumers on the go.
In December 2015, the Company engaged Texas Top Shelf , LLC , a beverage alcohol distributor with a strong logistical backbone nationwide. This engagement will allow the Company to expand its brand presence in some of North America’s most crucial distilled spirits markets resulting in an increased sales footprint and lower delivery costs for RWB Vodka and future brands.
The Company is currently in negotiations to acquire or partner with Famous Brands, LLC, a Texas-based firm with a portfolio of 17 distilled spirits brands. A potential acquisition of Famous Brands would significantly increase our revenues in 2016 and beyond.
Employees
Our sole employee is Chris Less, our president, treasurer, secretary and sole director. Mr. Less is employed under a written employment agreement. See,
Directors, Executive Officers and Corporate Governance.
Intellectual Property
We have no patents or trademarks.
- 14 -
Legal Proceedings
We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder are an adverse party or has a material interest adverse to us.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Nine months ended April 30, 2016 compared to the nine months ended April 30, 2015.
Revenue
Revenue decreased to $65,385 for the nine months ended April 30, 2016, compared to $85,895 for the nine months ended April 30, 2015. The decline is largely due to reduced prices on our RWB Vodka product.
Cost of Goods Sold
Cost of goods sold decreased to $51,247 for the nine months ended April 30, 2016, compared to $70,550 for the comparable period in 2015. The decline is due to lower manufacturing costs.
Gross Profit
Gross profit decreased to $14,138 for the nine months ended April 30, 2016, compared to $15,345 for the nine months ended April 30, 2015. This was caused by the decrease in sales prices and manufacturing costs discussed above.
Sales and Marketing Expenses
We recognized sales and marketing expenses of $189,934 and of $387,786 for the nine months ended April 30, 2016 and 2015, respectively. We have reduced to the cost of our advertising and promotional spend as we have targeted more effective methods.
General and Administrative Expenses
We recognized general and administrative expenses $703,032 and of $711,158 for the nine months ended April 30, 2016 and 2015, respectively. The decrease was due to lower expenditure on professional fees and payroll expenses.
Interest Expense
Interest expense increased from $427,798 for the nine months ended April 30, 2015 to $782,569 for the nine months ended April 30, 2016. Interest expense for the nine months ended April 30, 2016 included amortization of discount on convertible notes payable in the amount of $597,548, compared to $329,354 for the comparable period of 2015. The remaining amount is the result of the Company entering into interest-bearing convertible notes payable.
Net Loss
We incurred a net loss of $1,661,397 for the nine months ended April 30, 2016 as compared to $1,511,397 for the comparable period of 2015. The increase in the net loss was primarily the result of increased interest expense.
Three months ended April 30, 2016 compared to the three months ended April 30, 2015.
Revenue
Revenue decreased to $29,053 for the three months ended April 30, 2016, compared to $34,885 for the three months ended April 30, 2015 as we earned less revenue per bottle of RWB Vodka.
Cost of Goods Sold
Cost of Goods Sold decreased to $20,665 for the three months ended April 30, 2016, compared to $32,583 for the comparable period in 2015. This is due to lower manufacturing costs for our RWB Vodka product.
- 15 -
Gross Profit
Gross profit increased to $8,388 for the nine months ended April 30, 2016, compared to $2,302 for the three months ended April 30, 2015 as a result of the decline in per unit revenue and lower manufacturing costs.
Sales and Marketing Expenses
We recognized sales and marketing expenses of $16,076 and $126,493 for the three months ended April 30, 2016 and 2015, respectively. This is a result of decreased expenses as we retarget our advertising.
General and Administrative Expenses
We recognized general and administrative expenses of $182,569 and $246,595 for the three months ended April 30, 2016 and 2015, respectively. The decline is due to lower professional fees.
Interest Expense
Interest expense increased from $137,730 for the three months ended April 30, 2015 to $236,834 for the nine months ended April 30, 2016. Interest expense for the three months ended April 30, 2016 included amortization of discount on convertible notes payable in the amount of $39,065, compared to $97,866 for the comparable period of 2015. The remaining difference is due to higher interest on our convertible notes payable, as we carried higher average debt balance this year.
Net Loss
We incurred a net loss of $427,091 for the three months ended April 30, 2016 as compared to $508,516 for the comparable period of 2015. The increase in the net loss was primarily the result of increased interest expense.
Results of Operations
Fiscal year ended July 31, 2015 compared to the fiscal year ended July 31, 2014.
We incurred a net loss of $2,178,676 for the year ended July 31, 2015. We had a working capital deficit of $642,122 as of July 31, 2015. We do not anticipate having positive net income in the immediate future. Net cash used by operations for the year ended July 31, 2015 was $1,140,506.
We continue to rely on advances to fund operating shortfalls and do not foresee a change in this situation in the immediate future. There can be no assurance that we will continue to have such advances available. We will not be able to continue operations without them. We are pursuing alternate sources of financing, but there is no assurance that additional capital will be available to the Company when needed or on acceptable terms.
Revenue
Revenue increased to $114,433 for the year ended July 31, 2015, compared to $26,539 for the year ended July 31, 2014. The increase is primarily due to increase market awareness of our product. We have also expanded our distribution territory during fiscal year 2015.
Cost of Goods Sold
Cost of Goods Sold increased to $94,210 for the year ended July 31, 2015, compared to $25,334 for the comparable period in 2014. This is driven by the increased sales volume.
Gross Profit
Gross profit increased to $20,223 for the year ended July 31, 2015, compared to $1,205 for 2014. This is due to increased market awareness of the product, expanded distribution territory, and improved gross profit margins on our vodka sales.
Sales and Marketing Expenses
We recognized sales and marketing expenses of $480,612 and $382,165 for the year ended July 31, 2015 and 2014, respectively. During the year ended July 31, 2015, we increased the number of promotional events and increased our sponsorship. This was offset by a decline in traditional advertising.
- 16 -
General and Administrative Expenses
We recognized general and administrative expenses in the amount of $1,079,373 and $626,125 for the year ended July 31, 2015 and 2014, respectively. This was driven by additional costs for third-party sales persons to promote RWB vodka in new geographies. It is supplemented by increased professional fees for administrative services.
Interest Expense
Interest expense increased from $365,275 for the year ended July 31, 2014 to $638,914 for the year ended July 31, 2015. Interest expense for the year ended July 31, 2015 included $492,449 for amortization of discount on convertible notes payable in the amount of, compared to $302,409 for the comparable period of 2014. This is due to both the higher average debt balances and higher conversions on our convertible debt.
The remaining increase is due to higher contractual interest expenses on our convertible notes payable, which had a higher average balance in fiscal year 2015 than in fiscal year 2014.
Net Loss
We incurred a net loss of $2,178,676 for the year ended July 31, 2015 as compared to $1,372,360 for the comparable period of 2014. The increase in the net loss was mainly drive by increases in interest expense and professional fees.
Liquidity and Capital Resources
At April 30, 2016, we had cash on hand of $3,042. The company has negative working capital of $1,447,443. Net cash used in operating activities for the nine months ended April 30, 2016 was $833,506. Cash on hand is adequate to fund our operations for less than one month. We do not expect to achieve positive cash flow from operating activities in the near future. We will require additional cash in order to implement our business plan. There is no guarantee that we will be able to attain fund when we need them or that funds will be available on terms that are acceptable to the Company. We have no material commitments for capital expenditures as of April 30, 2016.
Additional Financing
Additional financing is required to continue operations. Although actively searching for available capital, the Company does not have any current arrangements for additional outside sources of financing and cannot provide any assurance that such financing will be available.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Directors and Officers serving our Company are as follows:
|
|
|
|
|
|
|
Name and Address
|
|
Age
|
|
Positions Held
|
|
Chris Less
6671 South Las Vegas Boulevard, Suite 210
Las Vegas, Nevada 89119
|
|
52
|
|
President, Secretary, Treasurer, Chief Executive Officer,
Principal Financial Officer and Director
|
The sole director named above has held his office since December 31, 2015 and will serve until the next annual meeting of the stockholders. Thereafter, directors will be elected for one-year terms at the annual stockholders’ meeting. Officers will hold their positions at the pleasure of the board of directors.
Biographical Information – Chris Less
Mr. Less, age 52, brings over twenty five years experience in consumer packaged goods, malt beverages and distribution, having previously been in charge of new business development, sales, marketing and merchandising at other beverage companies. From 2008 through 2011, Mr. Less was the high end brand manager for Silver Eagle Distributors. From 2011 through 2014, he was the region manager for Warsteiner USA. From 2015 until the present, he was director of sales and distribution for Big Bend Brewing Co. Mr. Less originally joined Aristocrat Group Corp. in November 2015 as general manager of its subsidiary, Top Shelf Distributing, LLC. Mr. Less holds a Bachelor of Science degree in Health Sciences and History from the University of North Alabama.
Chris Less has a written employment agreement with the Company under which he is being paid $70,000 per year with quarterly bonuses of up to $7,500 for his services to the Company.
- 17 -
We have not entered into any transactions with Chris Less described in Item 404(a) of Regulation S-K. Mr. Less was not appointed pursuant to any arrangement or understanding with any other person.
Family Relationships
There are no family relationships among our directors or executive officers.
Involvement in Certain Legal Proceedings
During the past ten (10) years, none of our directors, persons nominated to become directors, executive officers, promoters or control persons was involved in any of the legal proceedings listen in Item 401(f) of Regulation S-K.
Arrangements with directors and executive officers
There are no arrangements or understandings between our sole executive officer and director and any other person pursuant to which he is to be selected as an executive officer or director.
Significant Employees and Consultants
We have no employees, other than our President, Chris Less.
Agreement with Argyle Corporate Services, LLC
The following is a summary of the material terms of our agreement with Argyle Corporate Services, LLC. This summary does not purport to be complete and is subject to and qualified in its entirety by reference to the agreement. Copies of our agreement is filed as an exhibit to the registration statement of which this prospectus is a part. See “
Where You Can Find More Information.
” References in this section to “we,” “company,” “us” and “our” refer only to Aristocrat Group Corp.
In 2013 we engaged the management services of K.M. Delaney & Associates, LLC (now known as Argyle Corporate Services, LLC), an independent consulting company, to assist the corporation with essential back office services such as bookkeeping, auditing, web design and SEC compliance. The agreement with K.M. Delaney was originally oral and renewed each year until 2015 when the annual renewals for 2015 and 2016 were in writing. A copy of our 2016 engagement agreement with Argyle is filed as an exhibit to the registration statement of which this prospectus is a part.
The relationship with Argyle enables us to share the services of key personnel such as bookkeeper, auditor, web designer, SEC compliance advisor, and other necessary services required of a publicly traded company. We are better able to afford these necessary services than if we had to engage such services independently.
The services performed by Argyle include identifying independent contractors and employees who have the ability to provide the various services that emerging companies are not able to afford on their own. These contractors work with start-up companies providing critical services such as accounting; SEC, OTCQB and FINRA compliance as well as state filing and compliance; web designs, management and hosting; auditor liaison; and budgeting advice; merger & acquisition guidance; along with work spaces as needed; phone & fax services; copy services; shared office supplies. Argyle acts in the capacity of paymaster, facilitating payment of the corporations’ accounts payable, documenting accounts receivable and acts as payroll clerk, maintaining financial records so the corporate accounts can meet auditor standards.
The contractors and employees report directly to officers and directors of the corporation and are available to the corporation Monday through Friday. Agreements with the contractors and employees expressly prohibit their officers, directors, associates and affiliates having an equity position in the company or buying and selling stock in any company serviced by Argyle, or its predecessor, K.M. Delaney & Associates. To our knowledge and the knowledge of Argyle, none of the contractors or employees, their officers, directors, associates or affiliates do not now and never have had a stock position in the company. The independent contractors and employees are never compensated with shares of any public corporation including the corporations represented by Argyle.
K.M. Delaney was a manager managed limited liability company. The sole member was Kathleen M. Delaney and the manager was Patrick Brown who exercised sole power to direct the affairs of the limited liability company. Argyle Corporate Services, the successor to K.M. Delaney & Associates, LLC is a member managed limited liability company. The sole member and manager is Patrick Brown who exercises sole power to direct the affairs of the limited liability company.
- 18 -
Kathleen M Delaney, individually, is an attorney licensed in Texas and Louisiana. Ms. Delaney provides general legal counsel to the emerging corporations pursuant to an engagement arrangement with her law firm. Legal counsel encompasses writing or reviewing contracts and non-disclosure agreements, answering legal questions, reviewing press releases for compliance with FINRA and SEC regulations and any other legal issue that may arise for which the corporate officer consults with the attorney. In addition, as part of the services provided by attorney Delaney, if the corporation is in need of specialized legal counsel, Ms. Delaney facilitates the corporation by locating a specialist and recommending same to the corporation.
Kathleen M Delaney does not provide any other support services and generally has no interaction with corporate officers outside of general legal support. We compensate Ms. Delaney pursuant to the terms of her engagement agreement.
Ms. Delaney does not have and has never had a stock position with any of the corporations she provides legal services for. In addition, Ms. Delaney has not had a brokerage account in the last ten years. She has never been compensated with shares of stock from any corporation she represents. Ms. Delaney has never sold stock nor has anyone ever sold stock on her behalf or at her request. Ms. Delaney is not now nor has she ever been an associate or affiliate of any of the corporations she represents.
Code of Ethics
We have adopted a code of ethics that applies to our executive officers and employees.
Corporate Governance
Our business, property and affairs are managed by, or under the direction of, our board, in accordance with the Nevada Revised Statutes and our bylaws. Members of the board are kept informed of our business through discussions with the Chief Executive Officer and other key members of management, by reviewing materials provided to them by management.
We continue to review our corporate governance policies and practices by comparing our policies and practices with those suggested by various groups or authorities active in evaluating or setting best practices for corporate governance of public companies. Based on this review, we have adopted, and will continue to adopt, changes that the board believes are the appropriate corporate governance policies and practices for our Company. We have adopted changes and will continue to adopt changes, as appropriate, to comply with the Sarbanes-Oxley Act of 2002 and subsequent rule changes made by the SEC and any applicable securities exchange.
Director
Qualifications
and Diversity
The board seeks independent directors who represent a diversity of backgrounds and experiences that will enhance the quality of the board’s deliberations and decisions. Candidates shall have substantial experience with one or more publicly traded companies or shall have achieved a high level of distinction in their chosen fields. The board is particularly interested in maintaining a mix that includes individuals who are active or retired executive officers and senior executives, particularly those with experience in the finance and capital market industries.
In evaluating nominations to the board of directors, our board also looks for certain personal attributes, such as integrity, ability and willingness to apply sound and independent business judgment, comprehensive understanding of a director’s role in corporate governance, availability for meetings and consultation on Company matters, and the willingness to assume and carry out fiduciary responsibilities. Qualified candidates for membership on the board will be considered without regard to race, color, religion, sex, ancestry, national origin or disability.
Under the National Association of Securities Dealers Automated Quotations definition, an “independent director” means a person other than an officer or employee of the Company or its subsidiaries or any other individuals having a relationship that, in the opinion of the Company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director. The board’s discretion in determining director independence is not completely unfettered. Further, under the NASDAQ definition, an independent director is a person who (1) is not currently (or whose immediate family members are not currently), and has not been over the past three years (or whose immediate family members have not been over the past three years), employed by the company; (2) has not (or whose immediate family members have not) been paid more than $120,000 during the current or past three fiscal years; (3) has not (or whose immediately family has not) been a partner in or controlling shareholder or executive officer of an organization which the company made, or from which the company received, payments in excess of the greater of $200,000 or 5% of that organizations consolidated gross revenues, in any of the most recent three fiscal years; (4) has not (or whose immediate family members have not), over the past three years been employed as an executive officer of a company in which an executive officer of the Company has served on that company’s compensation committee; or (5) is not currently (or whose immediate family members are not currently), and has not been over the past three years (or whose immediate family members have not been over the past three years) a partner of our outside auditor.
- 19 -
At the present time, we have no independent directors.
Lack of Committees
We do not presently have a separately designated audit committee, compensation committee, nominating committee, executive committee or any other committees of our board of directors. As such, the sole director acts in those capacities. We believe that committees of the board are not necessary at this time given that we are in the exploration stage.
The term “Financial Expert” is defined under the Sarbanes-Oxley Act of 2002, as amended, as a person who has the following attributes: an understanding of generally accepted accounting principles and financial statements; has the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves; experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the company’s financial statements, or experience actively supervising one or more persons engaged in such activities; an understanding of internal controls and procedures for financial reporting; and an understanding of audit committee functions.
Mr. Less does not qualify as an “audit committee financial expert.” We believe that the cost related to retaining such a financial expert at this time is prohibitive, given our current operating and financial condition. Further, because we are in the development stage of our business operations, we believe that the services of an audit committee financial expert are not necessary at this time.
The Company may in the future create an audit committee to consist of one or more independent directors. In the event an audit committee is established, of which there can be no assurances given, its first responsibility would be to adopt a written charter. Such charter would be expected to include, among other things:
|
|
|
|
·
|
being directly responsible for the appointment, compensation and oversight of our independent auditor, which shall report directly to the audit committee, including resolution of disagreements between management and the auditors regarding financial reporting for the purpose of preparing or issuing an audit report or related work;
|
|
·
|
annually reviewing and reassessing the adequacy of the committee’s formal charter;
|
|
·
|
reviewing the annual audited financial statements with our management and the independent auditors and the adequacy of our internal accounting controls;
|
|
·
|
reviewing analyses prepared by our management and independent auditors concerning significant financial reporting issues and judgments made in connection with the preparation of our financial statements;
|
|
·
|
reviewing the independence of the independent auditors;
|
|
·
|
reviewing our auditing and accounting principles and practices with the independent auditors and reviewing major changes to our auditing and accounting principles and practices as suggested by the independent auditor or its management;
|
|
·
|
reviewing all related party transactions on an ongoing basis for potential conflict of interest situations; and
|
|
·
|
all responsibilities given to the audit committee by virtue of the Sarbanes-Oxley Act of 2002, which was signed into law by President George W. Bush on July 30, 2002.
|
Risk Oversight
Enterprise risks are identified and prioritized by management and each prioritized risk is assigned to the board for oversight. These risks include, without limitation, the following:
|
|
|
|
·
|
Risks and exposures associated with strategic, financial and execution risks and other current matters that may present material risk to our operations, plans, prospects or reputation.
|
|
·
|
Risks and exposures associated with financial matters, particularly financial reporting, tax, accounting, disclosure, internal control over financial reporting, financial policies, investment guidelines and credit and liquidity matters.
|
|
·
|
Risks and exposures relating to corporate governance; and management and director succession planning.
|
|
·
|
Risks and exposures associated with leadership assessment, and compensation programs and arrangements, including incentive plans.
|
- 20 -
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than ten percent of our common stock to file reports of ownership and change in ownership with the Securities and Exchange Commission and the exchange on which the common stock is listed for trading. Executive officers, directors and more than ten percent stockholders are required by regulations promulgated under the Exchange Act to furnish us with copies of all Section 16(a) reports filed. Based solely on our review of copies of the Section 16(a) reports filed for the fiscal year ended December 31, 2015, we believe that our executive officers, directors and ten percent stockholders complied with all reporting requirements applicable to them.
EXECUTIVE COMPENSATION
The table below summarizes all compensation awards to, earned by, or paid to our named executive officer for all service rendered in all capacities to us for the fiscal years ended July 31, 2015 and 2014.
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Fiscal Year
|
|
Salary ($)
|
|
Bonus ($)
|
|
Stock Awards ($)
|
|
Option Awards ($)
|
|
Non-Equity Incentive Plan Compensation ($)
|
|
Nonqualified Deferred Compensation ($)
|
|
All Other Compensation ($)
|
|
Total ($)
|
|
Robert Federowicz
|
|
2015
|
|
118,462
|
|
5,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
123,462
|
|
CEO
|
|
2014
|
|
81,667
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
81,667
|
Mr. Chris Less replaced Robert Federowicz as interim sole director and officer effective December 31, 2015.
Outstanding Equity Awards at the End of the Fiscal Year
OUTSTANDING EQUITY AWARDS AT JULY 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
|
Number of Securities Underlying Unexercised Options (#) Unexercisable
|
|
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
|
|
Option Exercise Price ($)
|
|
Option Expiration Date
|
|
Number of Shares of Stock That Have Not Vested (#)
|
|
Market Value of Shares of Stock That Have Not Vested ($)
|
|
Equity Incentive Plan Awards: Number of Unearned Shares or Other Rights That Have Not Vested (#)
|
|
Equity Incentive Plan Awards: market or Payout Value of Unearned Shares or Other Rights That Have Not Vested ($)
|
|
Robert Federowicz
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cindy Morrissey
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
Stock Option Grants
We have not granted any stock options to our executive officers as of June 29, 2016 .
Employment Agreements
Chris Less has a written employment agreement with the Company under which he is being paid $70,000 per year with quarterly bonuses of up to $7,500 for his services to the Company.
- 21 -
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 29, 2016 , with respect to the beneficial ownership of shares of the Company’s common stock by (i) each person known to us who owns beneficially more than 5% of the outstanding shares of the Company’s common stock, (ii) each of our Directors, (iii) each of our Executive Officers, and (iv) all of our Executive Officers and Directors as a group. Unless otherwise indicated, each stockholder has sole voting and investment power with respect to the shares shown. As of June 29, 2016 , there were 4,272,157 shares of the Company’s common stock issued and outstanding.