Authenticity is essential to brands in this day and age to protect the brand equity and product value. However, in contrast to the growing needs, the anti-counterfeit industry isn’t doing great. This too affected YPB Group (ASX: YPB), an anti-counterfeit and consumer engagement technology provider. To keep the business afloat, YPB Group Executive Chairman John Houston has provided financial support in the form of a $1m convertible loan facility.
The agreement was entered into by J F Houston Holdings (JFH), a company associated with John Houston. Houston has advanced $500k of the $1m facility and the interest is payable at the reference NAB facility rate plus 9%.
According to their website, the NAB benchmark rate is 8.72% for business loans. Taking this benchmark rate, the payable interest rate would be around 17.72%. The loan and interest are repayable by YPB in 12 months unless converted at Houston’s election or repaid earlier. YPB is considering repaying the loan through the issue of convertible notes to Houston, the terms of which are yet to be agreed by both parties.
Houston said: “I am pleased to show my continued support for YPB by providing this facility and loan fund. This is a clear mark of confidence in the technology, the team we have at YPB and the market potential for our technology and solutions.”
YPB has partnered with companies across Australia, Asia, and the US. Some big names include UGG Boots, Healthy Care, and Nature’s One Dairy. It also has successfully raised capital several times from sophisticated investors, including a $3m raise in October 2021, followed by a $1.5m raise in March 2022, as well as $500k in June 2022. However, the extensive partnerships and the capital raise attempts seem not to be fruitful for the business as YPB still incurred a loss of approximately $2.6m in FY22.
Should the loan agreement be converted into YPB shares in the future, it would make Houston the largest shareholder in the Company with a combined total of more than 500 million shares under his name and his affiliated entities. JFH will earn approximately $177k from the interest repayment plus a $20k facility fee, plus a three year option to purchase 200 million shares at the current share price of $0.005c. If the loan converts to equity, JFH will be eligible for the shares at the lesser of a 25% discount to the 20-day VWAP at the first advance date or the conversion date. A 25% discount at a current share price of $0.005c is $0.004c, or 250 million shares. The minimum share price for conversion is $0.002c, or 500 million shares. With JFH’s current 53 million shares (13% of issued capital) and conversion of the loan agreement and exercise of options, JFH may have between 503 million shares and 753 million shares. The current number of outstanding shares is 406 million, making JFH the majority shareholder. The deal appears to inoculate the share price of any future capital growth.
For the six months ended 30 June 2022, YPB Group reported $362k in revenue which was a 24% increase on the previous corresponding half year. Even with the boost in revenue though, the Company reported a $2.6 million net loss after tax, blowing out from the $1.8 million from the previous year.
YPB is unlikely to step into profitability anytime soon as the Company’s priority still revolves around juggling operational costs for the upcoming months, as well as paying interest on their new loan facility from JFH which appears, at this stage, to be a temporary solution to their financial woes.
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