424B4 1 form424b4.htm

 

Filed pursuant to Rule 424(b)(4).

Registration Statement No. 333-215267

Registration Statement No. 333-216044

 

PROSPECTUS DATED February 13, 2017

 

4,285,714 Shares of Common Stock

 

 

 

 

 

 

This is a firm commitment public offering of 4,285,714 shares of our common stock at an offering price of $3.50 per share.

 

Through February 13, 2017, our common stock was quoted on the OTC Pink Marketplace, under the symbol “NBEV.” The last reported sale price of our common stock on the OTC Pink Marketplace on February 13, 2017 was $5.34 per share.

 

As of February 14, 2017, our common stock trades on the NASDAQ Capital Market under the symbol “NBEV”.

 

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 14 of this prospectus for a discussion of information that should be considered in connection with an investment in our common stock.

  

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

   Per Share   Total 
Public offering price  $3.50   $15,000,000 
Underwriting discounts and commissions(1)  $

0.245

  $

1,050,000

 
Proceeds to us, before expenses  $

3.255

  $

13,950,000

 

 

(1)The underwriters will receive compensation in addition to the underwriting discount and commissions. See “Underwriting”, beginning on page 52 for a full description of compensation payable to the underwriters.

  

We have granted a 45-day option to the underwriters to purchase up to 642,857 additional shares of common stock from us solely to cover over-allotments, if any, at an offering price of $3.50 per share.

  

The underwriters expect to deliver the shares on or about February 17, 2017.

 

Joint Book-Running Managers

Aegis Capital Corp. Maxim Group LLC

 February 13, 2017

 

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TABLE OF CONTENTS

 

Page No.
   
PROSPECTUS SUMMARY 5
   
THE OFFERING
   
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 10
   
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 11
   
RISK FACTORS 14
   
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS 22
   
USE OF PROCEEDS 23
   
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 24
   
DIVIDEND POLICY 25
   
CAPITALIZATION 26
   
DILUTION 27
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 28
   
BUSINESS 39
   
MANAGEMENT 45
   
EXECUTIVE COMPENSATION 47
   
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 48
   
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 49
   
DESCRIPTION OF SECURITIES 50
   
UNDERWRITING 52
   
LEGAL MATTERS 59
   
EXPERTS 59
   
WHERE YOU CAN FIND ADDITIONAL INFORMATION 59
   
INDEX TO FINANCIAL STATEMENTS 60

 

You should rely only on the information contained in this prospectus or in any free writing prospectus that we may specifically authorize to be delivered or made available to you. We have not, and the underwriters have not, authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may only be used where it is legal to offer and sell our securities. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted.

 

For investors outside the United States: We have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside must inform themselves about, and observe any restrictions relating to, the offering of securities and the distribution of this prospectus outside the United States.

 

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We believe that the data obtained from these industry publications and third-party research, surveys and studies are reliable. We are ultimately responsible for all disclosure included in this prospectus.

 

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PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our securities, you should carefully read this entire prospectus, including our financial statements and the related notes and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each case included elsewhere in this prospectus. In this prospectus, unless the context otherwise requires, the terms “we,” “us,” “our,” “New Age Beverages Corporation,” and “New Age” refer to New Age Beverages Corporation and its consolidated subsidiaries.

 

Overview

 

We are a healthy functional beverage company engaged in the development, marketing, sales and distribution of a portfolio of Ready-to-Drink (“RTD”) better-for-you beverages including competitive entrants currently in the kombucha, RTD tea, premium bottled water, and energy drinks segments. We differentiate our brands through functional characteristics and ingredients and offer all natural and organic products, with no high-fructose corn syrup (“HFCS”), no-Genetically Modified Organisms (“GMOs”), no preservatives, and only all natural flavors, fruits, and ingredients. We manufacture our products in our own fully-integrated manufacturing facilities and through a network of six additional manufacturers strategically located throughout the United States. Our products are currently distributed in 10 countries internationally, and in 46 states domestically through a hybrid of four routes to market including our own direct store distribution (“DSD”) system that reaches more than 4,500 outlets, and to more than 10,000 other outlets throughout the United States directly through customer warehouses, through our network of DSD partners, and through our network of brokers and natural product distributors. Our products are sold through multiple channels including major grocery retail, natural food retail, specialty outlets, hypermarkets, club stores, pharmacies, convenience stores and gas stations. We market our products using a range of marketing mediums including in-store merchandising and promotions, experiential marketing, events, and sponsorships, digital marketing and social media, direct marketing, and traditional media including print, radio, outdoor, and TV.

 

Principal products

 

Our core business is to market, sell, and distribute our current brands including XingTea®, XingEnergy®, Aspen Pure®, and Bucha® Live Kombucha brands, and to develop new healthy functional beverage products. We compete in the healthy functional beverage segment, which is the growth area of RTD beverages, as consumers gravitate toward better for you beverage choices and away from traditionally large beverage categories including juices and carbonated soft drinks.

 

XingTea®

 

XingTea® is an all-natural, non-GMO, non-HFCS, RTD tea.

 

XingTea® is made with green teas, softened with black teas, and further differentiated with unique all-natural fruit flavors, with no preservatives, GMOs or HFCS. Sweetened with honey and only pure cane sugar, XingTea® comes in 14 natural sweetened and unsweetened flavors in a range of packages from 23.5 oz cans to 16 oz Pet multipacks and gallon jugs, and is produced in New Age’s network of six manufacturers across the United States.

 

XingTea® is sold in 46 states and 10 countries across multiple channels of distribution from traditional grocery to health food and specialty outlets to hypermarkets to club stores, to gas and convenience outlets. XingTea® competes in the RTD Tea category that according to Grand View Research, was USD 71.43 billion in 2015. According to Euromonitor International, the global non-alcoholic beverage industry in 2013 was $840 Billion, with RTD Tea consisting of 6.1%, or $50 Billion. According to the World Research Report, the RTD Tea Market has been averaging a 10.9% compound annual growth rate since 2012, and is expected to reach a combined size of $125 Billion in 2017. According to VDMA and Euromonitor the 2016 RTD Tea Market was $50 million, with a compound annual growth rate of 9.6% from 2012 to 2016.

 

XingEnergy®

 

XingEnergy® is an all-natural, non-GMO, non-HFCS, vitamin-enriched, better-for-you Energy Drink, made with all natural fruit flavors and contains the full recommended daily allowance of B-Complex vitamins.

 

XingEnergy® comes in four flavors including Tangerine Dream, Grape Attack, Mad Melon, and Grapefruit Go packaged in 16 oz cans, sold individually, expanding now to additional channels. XingEnergy® competes in the Energy Drinks category, and according to Investopedia, the global Energy Drink Market size was $49.9 Billion in 2014.

 

Aspen Pure®

 

Aspen Pure® is a naturally PH-balanced, artesian-well sourced water from the Colorado Rocky Mountains.

 

 

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Aspen Pure® has no added minerals or electrolytes, and comes out of the ground at a natural PH-balanced level of up to 7.0. Aspen Pure® is then purified and bottled at the source in New Age’s own manufacturing facilities. Aspen Pure competes in the Premium Bottled Water Category. According to Beverage Marketing Corporation, global bottled water sales reached 87 Billion Gallons in 2015 and experienced a compound annual growth rate 6.9% between 2010 and 2015. According to Transparency International the Market size for bottled water was $169.9 Billion in 2015.

 

Búcha® Live Kombucha

 

Búcha® Live Kombucha is a certified-organic, all-natural, non-GMO, non-HFCS, fermented Kombucha tea with more than two billion probiotic organisms in every serving.

 

Búcha® is produced with a unique and proprietary manufacturing process that eliminates the common vinegary aftertaste associated with many other Kombuchas and provides the brand with an industry leading nine-month shelf life as compared to the typical 90-day shelf life of our competitors’ products. The production process also leads to consistency and stability with no risk of secondary fermentation, secondary alcohol production, incremental sugar production or over-carbonation.

 

Búcha® is made from black teas, proprietary kombucha culture and probiotics, unique yeast strains and cultures, and all natural organic fruits and flavors. Búcha® Live Kombucha comes in seven flavors including Raspberry Pomegranate, Blood Orange, Guava Mango, Grapefruit Sage, Elderflower Green Tea, Yuzu Lemon, and Tropical Honey Blossom Ginger packaged in 16 oz glass bottles. The brand is sold in traditional grocery and health food and specialty outlets, and is beginning to expand distribution from California across the United States in mainstream retail and down the street outlets with the support of major DSD partners. Búcha® competes in the Kombucha Category, that according to Grand View Research reached $700 million in 2015 from $49 million in 2011, a compound annual growth rate of 69.3%.

 

In October of 2016, we entered into a management agreement, pursuant to which we took over the Sales, Marketing and Distribution of the Marley Beverage Company. The management agreement enabled the Company to enter into the RTD Coffee segment and Relaxation Beverages segment with the brands Marley One Drop and Marley Mellow Mood. While both companies continue to be separate entities both operationally and financially, the addition to the portfolio enables us to increase our relevance with key retailer and distributor partners with a broader portfolio of offerings, and enables the Marley Beverage Company to leverage our infrastructure, sales force and scale.

 

Sales and Marketing

 

We currently have an in-house sales and merchandising team consisting of approximately 50 individuals throughout the United States, whose compensation is highly variable and highly performance-based. Each sales person has individual targets for increasing “base” volume through distribution expansion, and “incremental” volume through promotions and other in-store merchandising and display activity. As distribution to new major customers, new major channels, or new major markets increases, we will expand the sales and marketing team on a variable basis.

 

Competitive Strengths

 

Differentiated Brands

 

We differentiate our brands primarily through functional points of difference between our products and those of our competitors, including the characteristics of being organic and all natural, containing no GMO and no preservatives, being sweetened with only honey or pure cane sugar, and containing fewer calories than our competitors’ products. In addition, we have begun to build the emotional benefit platforms behind each of our brands. The proposition of “Kom Búcha® with Me”- an invitation to be part of a healthy lifestyle movement - has been developed under the Búcha® brand. The ‘Where’s your Aspen®” campaign – an outdoor discovery campaign - has been developed under the Aspen Pure® brand, and the “Ama-Xing,” campaign – a challenge to consumers to be Ama-Xing in everything they do - has been developed under the XingTea® and XingEnergy® brands.

 

Direct Store Delivery Distribution Network

 

We have our own DSD distribution group in Colorado and a network of other DSD partners in major geographies throughout the United States. Our Colorado DSD group includes 24 truck routes, with a 20 person sales team, and a 20 person merchandising team, covering more than 4,500 outlets for more than 60 brands and more than 600 sku’s. The DSD arm of our business is an important test bed for new products before national rollout, provides an early warning system for any new emerging competitive brands or beverage segments, and gives the group near captive control of the shelf space across the 4,500 outlets the group services.

 

Beverage distributors can distribute their products directly through customer warehouses, but distribution via DSD is preferred by customers, as it substantially reduces labor and other overhead costs when distributors manage the freight, stocking and merchandising of their products directly to the retailers’ shelves. Although it is more expensive for the brand owner, the benefits of captive shelf space, merchandising at the point of sale, and penetration of a significantly greater number of smaller and independent outlets justify the added expense.

 

Marketing and Consumer Connection Expertise To Next Generation Consumers

 

We have the marketing capability to facilitate connections with consumers, and to build awareness, drive trial, begin conversion, and develop brand preference amongst consumers, and do so in a cost effective manner. We possess significant internal marketing expertise spanning development of communication and programs across all marketing mediums. To effectively compete against major beverage companies, we focus most of our activities on in-store merchandising, experiential and event marketing, and social and digital marketing activities. Further developing these capabilities to connect with millennials and more informed and health conscious consumers will further differentiate our marketing capabilities to connect with a targeted set of consumers and do so in a cost advantaged manner.

 

 

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Infrastructure, Organizational Capabilities

 

In addition to having an asset footprint that includes our own warehousing, our own trucks and DSD assets, our own manufacturing, and a network of other long-term manufacturing partners, we have a full scale of resources across every major function with depth in supply chain, production, procurement, shipping, finance, sales, marketing, distribution, and research and development. We define organizational capability strength as having the people, the processes, the systems, the information and the environment/culture to deliver superior, sustainable, and profitable organic growth. We are emplacing initiatives in each of the areas of organizational capabilities to strengthen the metric-driven, performance-oriented organization.

 

Experienced Leadership Team

 

Each member of our leadership team at New Age has experience in the beverage industry, spanning all facets of beverage operations. The combination of operating skills from our management team with the experience of successfully leading major multi-billion dollar, multinational beverage companies gives our organization a significant strength relative to most small- and medium-sized beverage companies.

 

Growth Strategies

 

Our primary long-term goal is to become a viable and competitive healthy functional beverage company. We intend to achieve this goal by driving organic growth behind our existing portfolio of healthy functional beverages, in all relevant packages and product formats, across all major retail channels, in all major markets, through an aligned network of retailer and distributor partners.

 

Our key growth strategies include the following:

 

  developing a powerful, performance-oriented, and metric-driven organizational culture;
     
  developing sales/trade tool kits to empower our sales force network to engage with global customers;
     
  developing brand/marketing tool kits for current and new brands and segments;
     
  ●  expanding distribution with current customers, new major customers domestically and internationally;
     
  ●  strengthening our supply chain to achieve best in class costs, on-time/as promised logistics and superior customer service;
     
  ●  improving margins with rearchitected cost of goods sold, improved efficiency, and improved net revenue per case with new products;
     
  ●  upgrading infrastructure, systems and processes with enterprise resource planning systems, improved financial reporting, operating expense control, and strengthened key metrics and accounting and control procedures; and
     
  ●  strengthening our financial foundation via accessing the capital markets, solidifying long-term banking partners and facilities, and pursuing transformative organic and external growth.

 

Recent Developments

 

On January 10, 2017, our wholly owned subsidiary, NABC Properties, LLC, entered into a Purchase and Sale Agreement with an unaffiliated third party. Pursuant to the agreement, NABC Properties, LLC sold the property located at 1700 E 68th Avenue, Denver, CO 80229 for a purchase price of $8,900,000. $100,000 of the purchase price was paid upon execution of the agreement, with the balance of $8,800,000 to be paid on or before March 6, 2017. The agreement contains a lease back provision, whereby NABC Properties, LLC shall lease the property for an initial term of ten years, with an option to extend for two successive five year periods. The lease cost is $52,000 per month for the initial year, with two percent annual increases.

 

Risks

 

Our business and ability to execute our growth strategies are subject to a number of risks of which you should be aware before you decide to buy our common stock. In particular, you should consider the risks discussed in the “Risk Factors” section of this prospectus, including, but not limited to, the following:

 

  we have incurred significant losses to date and may continue to incur losses;
     
  we will need to raise additional capital;
     
  ●  growth of operations will depend on the acceptance of our products and consumer discretionary spending;
     
  ●  we have limited management resources and are dependent on key executives;
     
  ●  failure to achieve and maintain effective internal controls could have a material adverse effect on our business;
     
  ●  competition that we face is varied and strong;
     
  ●  we depend on a limited number of suppliers of raw and packaging materials;
     
  ●  we depend on a small number of large retailers for a significant portion of our sales;
     
  ●  we depend on third party manufacturers for a portion of our business;
     
  ●  failure of third party distributors upon which we rely could adversely affect our business; and
     
  ●  litigation and publicity concerning product quality, health and other issues could adversely affect our results of operations, business and financial condition;
     

 

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Going Concern

 

The Report of our Independent Registered Public Accounting Firm with respect to our December 31, 2015 consolidated financial statements, which do not take into account our acquisition of Xing Beverage, LLC (“Xing”), which did not occur until June 30, 2016, as provided in our Annual Report on Form 10-K filed on April 7, 2016 includes an explanatory paragraph stating that the recurring losses, an accumulated deficit and a working capital deficit at December 31, 2015 raise substantial doubt about our ability to continue as a going concern for the previous standalone company.

 

Corporate Information

 

New Age Beverages Corporation was formed under the laws of the State of Washington on April 26, 2010 under the name American Brewing Company, Inc. As part of a recapitalization on September 25, 2013, we converted from an “S” Corporation to a “C” Corporation.

 

On April 1, 2015, we acquired the assets of B&R Liquid Adventure, which included the brand, Búcha® Live Kombucha. Prior to acquiring the Búcha Live Kombucha® brand and business, we were a craft brewery operation.  On October 1, 2015, we agreed to sell our brewery, brewery assets and related liabilities to focus exclusively on the healthy functional beverage category and the Búcha® brand. The assets sold consisted of accounts receivable, inventories, prepaid assets and property and equipment.  We recognized the sale of our brewery and micro-brewing operations as a discontinued operation beginning in the third quarter of 2015, and ultimately concluded the transaction in May 2016. In May 2016 we changed our name to Búcha, Inc. On June 30, 2016, we acquired the combined assets of New Age Beverages, LLC, Aspen Pure, LLC, New Age Properties, and Xing, relocated our operational headquarters to Denver, Colorado, changed our name to New Age Beverages Corporation, and received the stock ticker symbol “NBEV” on the OTC Pink Marketplace.

 

Our principal executive offices are located at 1700 E. 68th Avenue, Denver, CO 80229, and our phone number is (303)-289-8655.

 

Implications of being an Emerging Growth Company

 

As a company with less than $1,000,000,000 in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012. An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

 

  being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis of Financial Condition and Results of Operations in this prospectus;
     
  not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act;
     
  reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and
     
  exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act, which such fifth anniversary will occur in 2019. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1,000,000,000 or we issue more than $1,000,000,000 of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

 

We have elected to take advantage of certain of the reduced disclosure obligations and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

 

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that its decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

Notwithstanding the above, we are also currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backed issuer, nor a majority-owned subsidiary of a parent company that is not a smaller reporting company, and has a public float of less than $75,000,000 and annual revenues of less than $50,000,000 during the most recently completed fiscal year. Some of the reduced disclosure and other requirements available to us as a result of the JOBS Act may continue to be available to us after we are no longer considered an “emerging growth company”. Specifically, similar to “emerging growth companies”, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as an “emerging growth company” or “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.

 

 

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THE OFFERING

 

  Common stock offered by us  

4,285,714 shares of our common stock (or  4,928,571 shares if the underwriters exercise their over-allotment option in full at an offering price of $3.50 per share.

       
  Over-allotment option  

We have granted the underwriters an option for a period of up to 45 days to purchase up to 642,857 additional shares of common stock to cover over-allotments, if any, at an offering price of $3.50 per share.

       
  Common stock to be outstanding immediately after this offering  

29,011,494 shares (or 29,654,351 shares if the underwriters exercise their over-allotment option in full at an offering price of $3.50 per share.

       
  Use of proceeds  

We estimate that the net proceeds from this offering will be approximately $13,656,846, or approximately $15,749,346 if the underwriters exercise their over-allotment option in full, at an offering price of $3.50 per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use substantially all of the net proceeds from this offering to fund business operations, including the development and sale of our products, and for working capital and general corporate purposes, and to repay a $4,500,000 promissory note issued in connection with our Xing acquisition. See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.

       
  Representatives’ warrants   The registration statement of which this prospectus is a part also registers for sale warrants to purchase 267,857 shares of our common stock to the representatives of the underwriters as a portion of the underwriting compensation payable to the underwriters in connection with this offering. The warrants will be exercisable for a four-year period commencing one year following the effective date of this offering at an exercise price equal to 125% of the public offering price of the common stock. Please see “Underwriting — Representatives’ Warrants” for a description of these warrants.
       
  Risk Factors  

You should read the “Risk Factors” section of this prospectus beginning on page 14 for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

       
  OTC Pink trading symbol through February 13, 2017  

“NBEV”

       
 

NASDAQ trading symbol

 

As of February 14, 2017, our shares are listed on the NASDAQ Capital Market under the symbol “NBEV”.

 

The number of shares of our common stock that will be outstanding immediately after this offering is based on 22,747,324 shares of our common stock outstanding as of February 13, 2017, plus 1,978,456 shares of common stock expected to be issued in connection with the conversion of Series B preferred shares, and excludes:

 

   

1,600,000 shares of our common stock reserved for future issuance under our 2016/2017 Long-Term Incentive Plan; and

     
    267,857 shares of common stock issuable upon exercise of the warrants issued to the representatives in connection with this offering.

 

Except as otherwise stated herein, the information in this prospectus assumes no exercise by the underwriters of their option to purchase up to an additional 642,857 shares of common stock to cover over-allotments, if any.

 

In addition to the shares of common stock that will be outstanding after this offering, we currently have 250,000 shares of Series A preferred stock (which carry voting rights of 500 common shares for every share of Series A preferred stock) and 247,307 shares of Series B preferred stock (which do not carry voting rights) outstanding as of the date of this prospectus. Concurrent with our NASDAQ listing, we plan to redeem all of the Series A preferred shares that are outstanding. The shares will be redeemed by us at $0.001 per share.

 

 

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UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

 

The accompanying unaudited interim condensed consolidated financial statements as of September 30, 2016 of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules of the Securities and Exchange Commission (“SEC”).

 

   September 30, 2016 
   (unaudited) 
ASSETS     
CURRENT ASSETS:     
Cash  $267,784 
Accounts receivable, net of allowance for doubtful accounts   5,210,300 
Inventories   4,544,441 
Prepaid expenses and other current assets   488,348 
Total current assets   10,510,873 
      
Property and equipment, net of accumulated depreciation   7,345, 982 
Goodwill   9,524,041 
Customer relationships, net of accumulated amortization   125,000 
Total assets  $27,505,896 
      
LIABILITIES AND STOCKHOLDERS' EQUITY     
CURRENT LIABILITIES:     
Accounts payable, accrued expenses and other current liabilities  $5,713,327 
Factoring payable   - 
Current portion of notes payable   5,213,515 
Total current liabilities   10,926,842 
      
Notes payable, net of unamortized discounts and current portion   9,959,981 
Related party debt, net of unamortized discount   28,953 
Total liabilities   20,915,776 
      
COMMITMENTS AND CONTINGENCIES (Note 8)     
      
STOCKHOLDERS' EQUITY:     
Common stock, $0.001 par value, 50,000,000 shares authorized;21,900,106 shares issued and outstanding at September 30, 2016, and 15,435,651 shares issued and  outstanding at December 31, 2015   21,900 
Series A Preferred stock, $0.001 par value: 250,000 shares authorized, 250,000 shares issued and outstanding   250 
Series B Preferred stock, $0.001 par value: 300,000 shares authorized, 284,807 shares issued and outstanding at September 30, 2016, and 254,807 shares issued and outstanding at December 31, 2015   285 
Additional paid-in capital   12,021,177 
Accumulated deficit   (5,453,492)
Total stockholders' equity   6,590,120 
Total liabilities and stockholders' equity  $27,505,896 

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2016 and the year ended December 31, 2015

 

The following tables and footnotes provide our pro forma financial information, taking into account the acquisition of Xing. Historical results are not necessarily indicative of results to be expected for any future period. You should read the following pro forma financial information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and our financial statements and related notes included elsewhere in this prospectus.

 

For the Nine Months Ended September 30, 2016

 

    New Age
Beverages
Corporation
    Xing Group (six months ended June 30, 2016)     Pro Forma
Adjustments
    Pro Forma
Statement of
Operations
 
                         
REVENUES     14,757,552       21,585,529               36,343,081  
                                 
Cost of Goods Sold     11,629,593       16,663,821       -       28,293,414  
GROSS PROFIT     3,127,959       4,921,708       -       8,049,667  
                                 
OPERATING EXPENSES:                                
Advertising, promotion and selling     906,009       -               906,009  
General and administrative     2,819,226      

1,396,512

(A)      (359,599 )    

3,856,139

 
Gain on forgiveness of accrued payroll     -       -               -  
Legal and professional     1,326,108       - (A1)      (1,023,756 )     302,352  
Wages and benefits     -       2,940,560       -       2,940,560  
Total operating expenses     5,051,343      

4,337,072

      (1,383,355 )    

8,005,060

 
                                 
(LOSS) INCOME FROM OPERATIONS     (1,923,384 )     584,636       1,383,355      

44,607

 
                                 
OTHER INCOME (EXPENSE):                                
Interest expense     (189,470 )     (451,351 )(B)     216,371       (424,450 )
Other income     (8,760 )     13,894       -       5,134  
Total other income (expense)     (198,230 )     (437,457 )     216,371       (419,316 )
                                 
NET (LOSS) INCOME     (2,121,614 )    

147,179

      1,599,726       (374,709)  
                                 
Weighted Average Number of Common  Shares Outstanding - Basic     17,878,784       -  (C)     2,873,583       20,752,367  
Weighted Average Number of Common  Shares Outstanding - Diluted     17,878,784       -  (C)     2,873,583       20,752,367  
                                 
NET INCOME (LOSS) PER SHARE -  BASIC   $ (0.12 )   $       $       $ (0.02 )
NET INCOME (LOSS) PER SHARE -  DILUTED   $ (0.12 )   $       $       $ (0.02 )

 

 11 
 

 

For the year ended December 31, 2015

 

    New Age Beverages Corporation                    
    Nine Months     Three Months                 Pro Forma  
    Ended     Ended                 Statement  
    31-Dec-15     31-Mar-15           Pro Forma     of  
    Successor     Predecessor     Xing Group     Adjustments     Operations  
                               
REVENUES   $ 1,844,889     $ 576,863     $ 43,316,772     $ -     $ 45,738,524  
                                         
Cost of Goods Sold     1,606,141       402,235       33,682,086       -       35,690,462  
                                         
GROSS PROFIT     238,748       174,628       9,634,686       -       10,048,062  
                                         
OPERATING EXPENSES:                                        
                                         
Advertising, promotion and selling     209,109       51,516       -       -       260,625  
General and administrative     1,065,954       145,469       8,476,067 (A2)     57,513       9,745,003  
Gain on forgiveness of accrued payroll     (500,000 )     -       -       -       (500,000 )
Legal and professional     225,390       47,371       -       -       272,761  
Total operating expenses     1,000,453       244,356       8,476,067       57,513       9,778,389  
                                         
(LOSS) INCOME FROM OPERATIONS     (761,705 )     (69,728 )     1,158,619       57,513       384,699  
                                         
OTHER INCOME (EXPENSE):                                        
Interest expense     (138,988 )     (2,294 )     (937,847 )(B1)     467,887       (611,242 )
Other income     1       -       551,536       -       551,537  
Total other income (expense)     (138,987 )     (2,294 )     (386,311 )     467,887       (59,705 )
                                         
NET (LOSS) INCOME   $ (900,692 )   $ (72,022 )   $ 772,308     $ 410,374   $ 209,968  
                                         
Weighted Average Number of Common Shares Outstanding - Basic     15,403,925                (C)      4,353,915       19,757,840  
Weighted Average Number of Common Shares Outstanding - Diluted     15,403,925                (C)     4,353,915        19,757,840  
                                         
NET INCOME (LOSS) PER SHARE - BASIC   $ (0.06 )                           $ 0.01
                                         
NET INCOME (LOSS) PER SHARE – DILUTED   $ (0.06)                             $ 0.01

 

 12 
 

 

NEW AGE BEVERAGES CORPORATION

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

September 30, 2016 and December 31, 2015

 

1. Basis of Presentation

 

The unaudited pro forma combined financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been omitted pursuant to such rules and regulations; accordingly, these pro forma financial statements should be read in connection with New Age Beverages Corporation (“NABC”) and Xing Group (“Xing”) historical audited and unaudited financial statements referred to above.

 

The unaudited pro forma combined statements of operations for the nine months ended September 30, 2016 and the year ended December 31, 2015 gives effect to the Acquisition as if it had been consummated on January 1, 2015 and include historical information as reported by the separate companies as well as adjustments that give effect to events that are directly attributable to the Acquisition, are expected to have a continuing impact and are factually supportable.

 

2. Acquisition of Xing

 

On June 30, 2016, the Company acquired the assets of New Age Beverage, LLC, New Age Properties, LLC, Aspen Pure, LLC, and Xing Beverage, LLC (collectively, Xing). Xing is engaged in the manufacturing and sale of various teas and beverages, which will help the Company expand its capabilities and product offering. The operating results of Xing will be consolidated with those of the Company beginning July 1, 2016. Total purchase consideration paid was $19,995,000, which consisted of $8,500,000 of cash, a note payable for $4,500,000 and 4,353,915 shares of common stock. The common stock issued was valued at $1.61 per share, which was the volume weighted average closing stock for the thirty days preceding the acquisition.

 

The purchase price was allocated to the net assets acquired based on their estimated fair values as follows:

 

Accounts receivable   $ 5,627,669  
Inventories     4,847,417  
Prepaid expenses and other current assets     492,972  
Property and equipment, net     7,418,789  
Other intangible assets acquired     -  
Assumption of accounts payable, accrued expenses, other current liabilities and mortgage note payable     (7,526,874 )
      10,859,973  
Goodwill   9,135,027   
Total Purchase Price   $ 19,995,000  

 

The above allocation is preliminary and is subject to change. Because the acquisition was consummated on June 30, 2016, the Company has begun to assess the fair value of the various net assets acquired, but has not yet completed this assessment. The Company is also in the process of identifying other intangible assets, such as customer relationships and recipes that may need to be recognized apart from goodwill. Once identified, these other intangible assets, if any, will be recorded at their fair values. The Company is working to finalize the allocations as quickly as possible, and anticipates that the allocation will not be final for approximately 6 months. Any adjustments necessary may be material to the condensed consolidated balance sheet and the amount of goodwill recognized. Any resulting adjustments would have no impact to the September 30, 2016 reported operating results. 

 

3. Pro Forma Adjustments

 

The following is a summary of pro forma adjustments reflected in the unaudited pro forma condensed combined financial statements based on preliminary estimates, which may change as additional information is obtained. 

     
  Pro Forma Statement of Comprehensive Income Adjustments

 

The pro forma adjustments represent the following:  

 

Pro forma adjustments for the nine months ended September 30, 2016:

 

  A. To record estimated depreciation expense related to the step-up to fair value on the building acquired from the Xing Group. The step-up resulted in an increased value of $2,300,500, which is being depreciated over 40 years. Estimated depreciation expense related to the increased building value for the six months from January 1 to June 30, 2016 is $28,756 and reflected in general and administrative expenses (the three months from July 1 to September 30, 2016 has been recorded in the New Age Beverages Corporation financials).
     
  To also eliminate $388,355 of one-time acquisition costs reflected in general and administrative expenses.
     
  A1. To eliminate $1,023,756 of one-time acquisition costs reflected in legal and professional fees.
     
  B. To eliminate the Xing Group interest expense for the six months ended June 30, 2016 related to debt that was eliminated upon acquisition and to record interest expense on the post-acquisition related debt for the six months ended June 30, 2016, as follows:

 

Less: Interest Expense on Pre Acquisition Debt:

 

  $(451,351)

 

Add: Interest Expense on Post Acquisition Debt :

 

   Balance   Rate   Interest Expense 
Seller’s note payable  $4,500,000    1.00%  $22,500 
Note payable  $4,800,000    4.02%  $96,480 
Revolver  $5,800,000    4.00%  $116,000 
             $234,980 
                
Pro Forma Adjustment to reduce interest expense:            $(216,371)

 

The interest rate on the revolver has a variable rate. The impact on the net income of the Company for a 1/8 percent change in rate, up or down, would be approximately $7,250 on an annual basis.

 

C. To adjust the weighted average number of shares as if the common stock attributable to the acquisition of the Xing Group (2,873,583 shares) had been issued and outstanding for the six months ended June 30, 2016.  A total of 4,353,915 shares of common stock were issued on June 30, 2016 and the pro forma adjustment represents approximately 2/3 of the number of shares that would have been outstanding from January 1, 2016 through June 30, 2016.  Approximately 1/3 of the number of shares outstanding are reflected in the New Age Beverage Corporation September 30, 2016 weighted average shares calculation.  For 2015, it is assumed the entire 4,353,915 was outstanding for the entire period. 

 

Pro forma adjustments for the year ended December 31, 2015:

 

A2. To record estimated depreciation expense related to the step-up to fair value on the building acquired from the Xing Group. The step-up resulted in an increased value of $2,300,500, which is being depreciated over 40 years. Estimated depreciation expense related to the increased building value for the year ended December 31, 2015 is $57,513 and reflected in general and administrative expenses.

 

B1. To record interest expense on the post-acquisition related debt and eliminate the interest expense associated with the following:

 

Less: Interest Expense on Pre Acquisition Debt:

 

  $(937,847)

 

Add: Interest Expense on Post Acquisition Debt :

 

   Balance   Rate   Interest Expense 
Seller’s note payable  $4,500,000    1.00%  $45,000 
Note payable  $4,800,000    4.02%  $192,960 
Revolver  $5,800,000    4.00%  $232,000 
             $469,960 
                
Pro Forma Adjustment to reduce interest expense:            $(467,887)

 

To adjust the weighted average shares as if the common stock attributable to the acquisition of the Xing Group (4,353,915 shares) had been issued and outstanding for the year ended December 31, 2015.

  

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RISK FACTORS

 

Any investment in our securities involves a high degree of risk. Investors should carefully consider the risks described below and all of the information contained in this prospectus before deciding whether to purchase our common stock. Our business, financial condition or results of operations could be materially adversely affected by these risks if any of them actually occur. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks we face as described below and elsewhere in this prospectus.

 

Risks Related to our Financial Condition

 

We have incurred significant losses to date and may continue to incur losses.

 

We have incurred net losses since we commenced operations. For the nine month period ended September 30, 2016, as reported in our September 30, 2016 financial statements, our operating loss was $1,923,384. On a pro forma basis, after giving effect to our acquisition of Xing, we generated pro forma net income from operations of $44,607 for the nine month period ended September 30, 2016. We have incurred net losses in each fiscal year since our inception. We had net losses of $1,103,333 and $891,435 for the years ended December 31, 2015 and 2014, respectively on the previous standalone Bucha operation.

 

As of December 31, 2015, we had an accumulated deficit of $3,331,878. We had an accumulated deficit of $5,453,492 as of September 30, 2016. These losses have had, and likely will continue to have, an adverse effect on our working capital, assets, and equity. In order to achieve and sustain such revenue growth in the future, we must significantly expand our market presence and revenues from existing and new customers. We may continue to incur losses in the future and may never generate revenues sufficient to become profitable or to sustain profitability. Continuing losses may impair our ability to raise the additional capital required to continue and expand our operations.

 

Our auditors have expressed doubt about our ability to continue as a going concern.

 

The Report of our Independent Registered Public Accounting Firm with respect to our December 31, 2015 consolidated financial statements, which do not take into account our acquisition of Xing, which did not occur until June 30, 2016, as provided in our Annual Report on Form 10-K filed on April 7, 2016 includes an explanatory paragraph stating that the recurring losses, an accumulated deficit and a working capital deficit at December 31, 2015 raise substantial doubt about our ability to continue as a going concern for the previous standalone company.

 

We will need to raise additional capital.

 

We are currently integrating operations related to our Xing acquisition and will incur expenses associated with the integration. Any failure of the newly combined enterprise to generate revenues or sustain positive cash flows in sufficient amounts to fund our business operations may result in the need to secure additional financing beyond this offering in order to support our operations. We can provide no assurances that any additional sources of financing will be available to us on favorable terms, if at all. Our forecast of the period of time through which our current financial resources will be adequate to support our operations and the costs to support our general and administrative, selling and marketing and research and development activities are forward-looking statements and involve risks and uncertainties.

 

We may also need to raise additional capital to expand our business to meet our long-term business objectives. Additional financing, which is not in place at this time, may come from the sale of equity or convertible or other debt securities in a public or private offering, from an additional credit facility or strategic partnership coupled with an investment in us or a combination of both. We may be unable to raise sufficient additional financing on terms that are acceptable to us, if at all. Our failure to raise additional capital and in sufficient amounts may significantly impact our ability to expand our business. For further discussion of our liquidity requirements as they relate to our long-term plans, see the section entitled “Liquidity and Capital Resources — Capital Resources and Expenditure Requirements”.

 

We may have contingent liability arising out of a possible violation of Section 5 of the Securities Act in connection with our use of the Free Writing Prospectus filed with the Securities and Exchange Commission on January 31, 2017.

Rule 433(b)(2) of the Securities Act requires that an unseasoned issuer (such as the company) disseminating a free writing prospectus must accompany or precede such free writing prospectus with the most recent statutory prospectus (unless there have been no changes to a previously provided prospectus).

On January 31, 2017, after filing Amendment No. 2 to the registration statement of which this prospectus forms a part, or Amendment No. 2, we filed a free writing prospectus with the SEC. Amendment No. 2 did not include the volume or amount of shares being offered. We intend to re-circulate an amended preliminary prospectus to all recipients of the free writing prospectuses that includes the volume of shares or amount being offered. While we believe the use of the free writing prospectus was permissible, our use of the free writing prospectus could be challenged as a violation of Section 5 of the Securities Act. If our use of the free writing prospectus is challenged, we could have a contingent liability arising out of the possible violation of Section 5 of the Securities Act. Any liability would depend upon the number of shares purchased by the 'recipients' of the free writing prospectus. If a claim were brought by any such 'recipients' of such free writing prospectus and a court were to conclude that the public dissemination of such free writing prospectus constituted a violation of Section 5 of the Securities Act, the 'recipient' may have rescission rights and we could be required to repurchase the shares sold to the 'recipients' who reviewed such free writing prospectus, at the original purchase price, plus statutory interest from the date of purchase, for claims brought during a period of one year from the date of their purchase of shares. We could also incur considerable expense in contesting any such claims. Such payments and expenses, if required, could significantly reduce the amount of working capital we have available for our operations and business plan, delay or prevent us from completing our plan of operations, or force us to raise additional funding sooner than expected, which funding may not be available on favorable terms, if at all. Additionally, the value of our securities will likely decline in value in the event we are deemed to have liability, or are required to make payments or pay expenses in connection with the potential claim described above.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to “emerging growth companies” could make our common stock less attractive to investors.

 

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of $1,000,000,000 or more; (ii) the last date 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 three-year period, issued more than $1,000,000,000 in non-convertible debt; and (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. We will be deemed a large accelerated filer on the first day of the fiscal year after the market value of our common equity held by non-affiliates exceeds $700,000,000, measured on January 1.

 

 14 
 

 

We cannot predict if investors will find our common stock less attractive to the extent we rely on the exemptions available to emerging growth companies. 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.

 

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

 

A Company that elects to be treated as an emerging growth company shall continue to be deemed an emerging growth company until the earliest of (i) the last day of the fiscal year during which it had total annual gross revenues of $1,000,000,000 (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 it has, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or (iv) the date on which is deemed to be a ‘large accelerated filer’ as defined by the SEC, which would generally occur upon it attaining a public float of at least $700,000,000.

 

Risks Related to our Business

 

Growth of operations will depend on the acceptance of our products and consumer discretionary spending.

 

The acceptance of our healthy functional beverage products, including our newly acquired tea, energy drink and bottled water products, by our customers is critically important to our success. Shifts in user preferences away from our products, our inability to develop effective healthy beverage products that appeal to consumers, or changes in our products that eliminate items popular with some consumers could harm our business. Also, our success depends to a significant extent on discretionary user spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly, we may experience an inability to generate revenue during economic downturns or during periods of uncertainty, where users may decide to purchase beverage products that are cheaper or to forego purchasing any type of healthy beverage products, due to a lack of available capital. Any material decline in the amount of discretionary spending could have a material adverse effect on our sales, results of operations, business and financial condition.

 

We cannot be certain that the products that we offer will become, or continue to be, appealing and as a result there may not be any demand for these products and our sales could decrease, which would result in a loss of revenue. Additionally, there is no guarantee that interest in our products will continue, which could adversely affect our business and revenues.

 

Demand for products which we sell depends on many factors, including:

 

  the number of customers we are able to attract and retain over time;
     
 

the competitive environment in the healthy beverage industry, as well as the beverage industry as a whole, may force us to reduce prices below our desired pricing level or increase promotional spending; and

     
 

the ability to anticipate changes in user preferences and to meet customers’ needs in a timely cost effective manner;

 

All of these factors could result in immediate and longer term declines in the demand for the products we plan to offer, which could adversely affect our sales, cash flows and overall financial condition. An investor could lose his or her entire investment as a result.

 

We have limited management resources and are dependent on key executives.

 

We are currently relying on key individuals to continue our business and operations and, in particular, the professional expertise and services of Mr. Brent Willis, Chief Executive Officer, as well as key members of our executive management team and others in key management positions. We plan to appoint additional independent directors in order to comply with NASDAQ requirements, however, until any potential additional directors or officers are appointed, we may not have sufficient managerial resources to successfully manage the increased business activity envisioned by our business strategy. In addition, our future success depends in large part on the continued service of Mr. Willis. We have entered into an employment agreement with Mr. Willis, but the existence of an employment agreement does not guarantee retention of Mr. Willis and we may not be able to retain Mr. Willis for the duration of or beyond the end of his term. If our officers and directors chose not to serve or if they are unable to perform their duties, and we are unable to retain a replacement qualified individual or individuals, this could have an adverse effect on our business operations, financial condition and operating results if we are unable to replace the current officers and directors with other qualified individuals.

 

 15 
 

 

 

Failure to achieve and maintain effective internal controls could have a material adverse effect on our business.

 

If we cannot provide reliable financial reports, our operating results could be harmed. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Based on our evaluation, our management concluded that there was a material weakness in our internal control over financial reporting for the year ended December 31, 2015. The material weakness identified did not result in the restatement of any previously reported financial statements or any related financial disclosure, nor does management believe that it had any effect on the accuracy of our financial statements for the year ended December 31, 2015. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Prior to our acquisition of Xing, all of our financial reporting was carried out by external accounting personnel. We believe that the lack of internal accounting staff resulted in a lack of segregation of duties and the accounting technical expertise necessary for an effective system of internal control. Because of the material weakness described above, management concluded that, as of December 31, 2015, our internal control over financial reporting was not effective. While we continue to evaluate and improve our internal controls and have acquired an internal cost accounting team as part of the acquisition of Xing, we cannot be certain that these measures will ensure adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Failure to achieve and maintain an effective internal control environment could cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price. Failure to comply with Section 404 could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. With the addition of the financial resources from the acquisition of Xing, we believe that the weaknesses identified above have been remediated to a significant degree, and have not had any material affect on our financial results. In addition, we have hired a new controller, with public company accounting experience in order to provide for the appropriate segregation of duties. We also believe that with the additional financial resources, and external support, which were added during the third quarter, that multiple levels of supervision and review now exist over period end financial disclosure and reporting processes. As a result, management believes that our material weakness have been effectively remediated.

 

Competition that we face is varied and strong.

 

Our products and industry as a whole are subject to competition. There is no guarantee that we can develop or sustain a market position or expand our business. We anticipate that the intensity of competition in the future will increase.

 

We compete with a number of entities in providing products to our customers. Such competitor entities include: (1) a variety of large multinational corporations engaged in the beverage and healthy beverage industries, including but not limited to companies that have established loyal customer bases over several decades; (2) healthy beverage companies that have an established customer base, and have the same or a similar business plan as we do and may be looking to expand nationwide; and (3) a variety of other local and national healthy beverage companies with which we either currently or may, in the future, compete.

 

Many of our current and potential competitors are well established and have longer operating histories, significantly greater financial and operational resources, and greater name and brand recognition than we have. As a result, these competitors may have greater credibility with both existing and potential customers. They also may be able to offer more products and more aggressively promote and sell their products. Our competitors may also be able to support more aggressive pricing than we will be able to, which could adversely affect sales, cause us to decrease our prices to remain competitive, or otherwise reduce the overall gross profit earned on our products.

 

Our industry requires the attraction and retention of talented employees.

 

Success in the beverage industry, specifically as it relates to our healthy functional beverage products, does and will continue to require the acquisition and retention of highly talented and experienced individuals. Due to the growth in the market segment targeted, such individuals and the talent and experience they possess is in high demand. There is no guarantee that we will be able to attract and maintain access to such individuals. If we fail to attract, train, motivate and retain talented personnel, our business, financial condition, and operating results may be materially and adversely impacted, which could result in the loss of your entire investment.

 

We depend on a limited number of suppliers of raw and packaging materials.

 

We rely upon a limited number of suppliers for raw and packaging materials used to make and package our products. Our success will depend in part upon our ability to successfully secure such materials from suppliers that are delivered with consistency and at a quality that meets our requirements. The price and availability of these materials are subject to market conditions. Increases in the price of our products due to the increase in the cost of raw materials could have a negative effect on our business.

 

If we are unable to obtain sufficient quantities of raw and packaging materials, delays or reductions in product shipments could occur which would have a material adverse effect on our business, financial condition and results of operations. The supply and price of raw materials used to produce our products can be affected by a number of factors beyond our control, such as frosts, droughts, other weather conditions, economic factors affecting growing decisions, and various plant diseases and pests. If any of the foregoing were to occur, no assurance can be given that such condition would not have a material adverse effect on our business, financial condition and results of operations. In addition, our results of operations are dependent upon our ability to accurately forecast our requirements of raw materials. Any failure by us to accurately forecast its demand for raw materials could result in an inability to meet higher than anticipated demand for products or producing excess inventory, either of which may adversely affect our results of operations.

 

 16 
 

 

We depend on a small number of large retailers for a significant portion of our sales.

 

Food and beverage retailers in the U.S. and other markets have been consolidating, resulting in large, sophisticated retailers with increased buying power. They are in a better position to resist our price increases and demand lower prices. They also have leverage to require us to provide larger, more tailored promotional and product delivery programs. If we and our bottlers and distributors do not successfully provide appropriate marketing, product, packaging, pricing and service to these retailers, our product availability, sales and margins could suffer. Certain retailers make up a significant percentage of our products’ retail volume, including volume sold by our bottlers and distributors. Some retailers also offer their own private label products that compete with some of our brands. The loss of sales of any of our products by a major retailer could have a material adverse effect on our business and financial performance.

 

We depend on third party manufacturers for a portion of our business.

 

A portion of our sales revenue is dependent on third party manufacturers that we do not control. The majority of these manufacturers’ business comes from producing and/or selling either their own products or our competitors’ products. As independent companies, these manufacturers make their own business decisions. They may have the right to determine whether, and to what extent, they manufacture our products, our competitors’ products and their own products. They may devote more resources to other products or take other actions detrimental to our brands. In most cases, they are able to terminate their manufacturing arrangements with us without cause. We may need to increase support for our brands in their territories and may not be able to pass on price increases to them. Their financial condition could also be adversely affected by conditions beyond our control, and our business could suffer as a result. Deteriorating economic conditions could negatively impact the financial viability of third party manufacturers. Any of these factors could negatively affect our business and financial performance.

 

Failure of third-party distributors upon which we rely could adversely affect our business.

 

We rely heavily on third party distributors for the sale of our products to retailers. The loss of a significant distributor could have a material adverse effect on our business, financial condition and results of operations. Our distributors may also provide distribution services to competing brands, as well as larger, national or international brands, and may be to varying degrees influenced by their continued business relationships with other larger beverage, and specifically, healthy beverage companies. Our independent distributors may be influenced by a large competitor if they rely on that competitor for a significant portion of their sales. There can be no assurance that our distributors will continue to effectively market and distribute our products. The loss of any distributor or the inability to replace a poorly performing distributor in a timely fashion could have a material adverse effect on our business, financial condition and results of operations. Furthermore, no assurance can be given that we will successfully attract new distributors as they increase their presence in their existing markets or expand into new markets.

 

Substantial disruption to production at our manufacturing and distribution facilities could occur.

 

A disruption in production at our beverage manufacturing facility could have a material adverse effect on our business. In addition, a disruption could occur at any of our other facilities or those of our suppliers, bottlers or distributors. The disruption could occur for many reasons, including fire, natural disasters, weather, water scarcity, manufacturing problems, disease, strikes, transportation or supply interruption, government regulation, cybersecurity attacks or terrorism. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which could negatively affect our business and financial performance.

 

We are subject to seasonality related to sales of our products.

 

Our business is subject to substantial seasonal fluctuations. Historically, a significant portion of our net sales and net earnings has been realized during the period from May through September. Accordingly, our operating results may vary significantly from quarter to quarter. We reported an operating loss for the twelve-month period ended December 31, 2015. Our operating results for any particular quarter are not necessarily indicative of any other results. If for any reason our sales were to be substantially below seasonal norms, our annual revenues and earnings could be materially and adversely affected.

 

We may fail to comply with applicable government laws and regulations.

 

We are subject to a variety of federal, state and local laws and regulations in the U.S. These laws and regulations apply to many aspects of our business including the manufacture, safety, labeling, transportation, advertising and sale of our products. Violations of these laws or regulations in the manufacture, safety, labeling, transportation and advertising of our products could damage our reputation and/or result in regulatory actions with substantial penalties. In addition, any significant change in such laws or regulations or their interpretation, or the introduction of higher standards or more stringent laws or regulations, could result in increased compliance costs or capital expenditures. For example, changes in recycling and bottle deposit laws or special taxes on our beverages and our ingredients could increase our costs. Regulatory focus on the health, safety and marketing of beverage products is increasing. Certain federal or state regulations or laws affecting the labeling of our products, such as California’s “Prop 65,” which requires warnings on any product with substances that the state lists as potentially causing cancer or birth defects, are or could become applicable to our products.

 

 17 
 

 

We face various operating hazards that could result in the reduction of our operations.

 

Our operations are subject to certain hazards and liability risks faced by beverage companies that manufacture and distribute water, tea and energy drink products, such as defective products, contaminated products and damaged products. The occurrence of such a problem could result in a costly product recall and serious damage to our reputation for product quality, as well as potential lawsuits. Although we maintain insurance against certain risks under various general liability and product liability insurance policies, no assurance can be given that our insurance will be adequate to fully cover any incidents of product contamination or injuries resulting from our operations and our products. We cannot assure you that we will be able to continue to maintain insurance with adequate coverage for liabilities or risks arising from our business operations on acceptable terms. Even if the insurance is adequate, insurance premiums could increase significantly which could result in higher costs to us.

 

Litigation and publicity concerning product quality, health and other issues could adversely affect our results of operations, business and financial condition.

 

Our business could be adversely affected by litigation and complaints from customers or government authorities resulting from product defects or product contamination. Adverse publicity about these allegations may negatively affect us, regardless of whether the allegations are true, by discouraging customers from buying our products. We could also incur significant liabilities, if a lawsuit or claim results in a decision against us, or litigation costs, regardless of the result. Further, any litigation may cause our key employees to expend resources and time normally devoted to the operations of our business.

 

Risks Related to our Intellectual Property

 

It is difficult and costly to protect our proprietary rights.

 

Our commercial success will depend in part on obtaining and maintaining trademark protection and trade secret protection of our products and brands, as well as successfully defending these trademarks against third-party challenges. We will only be able to protect our intellectual property related to our trademarks and brands to the extent that we have rights under valid and enforceable trademarks or trade secrets that cover our products and brands. Changes in either the trademark laws or in interpretations of trademark laws in the U.S. and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our issued trademarks or in third-party patents. The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage.

 

We may face intellectual property infringement claims that could be time-consuming and costly to defend, and could result in our loss of significant rights and the assessment of treble damages.

 

From time to time we may face intellectual property infringement, misappropriation, or invalidity/non-infringement claims from third parties. Some of these claims may lead to litigation. The outcome of any such litigation can never be guaranteed, and an adverse outcome could affect us negatively. For example, were a third party to succeed on an infringement claim against us, we may be required to pay substantial damages (including up to treble damages if such infringement were found to be willful). In addition, we could face an injunction, barring us from conducting the allegedly infringing activity. The outcome of the litigation could require us to enter into a license agreement which may not be under acceptable, commercially reasonable, or practical terms or we may be precluded from obtaining a license at all. It is also possible that an adverse finding of infringement against us may require us to dedicate substantial resources and time in developing non-infringing alternatives, which may or may not be possible. In the case of diagnostic tests, we would also need to include non-infringing technologies which would require us to re-validate our tests. Any such re-validation, in addition to being costly and time consuming, may be unsuccessful.

 

Finally, we may initiate claims to assert or defend our own intellectual property against third parties. Any intellectual property litigation, irrespective of whether we are the plaintiff or the defendant, and regardless of the outcome, is expensive and time-consuming, and could divert our management’s attention from our business and negatively affect our operating results or financial condition.

 

We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

 

Although we try to ensure that we, our employees, and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we, our employees, or independent contractors have used or disclosed intellectual property in violation of others’ rights. These claims may cover a range of matters, such as challenges to our trademarks, as well as claims that our employees or independent contractors are using trade secrets or other proprietary information of any such employee’s former employer or independent contractors. As a result, we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.

 

 18 
 

 

Risks Related to our Common Stock and this Offering

 

The market price of our common stock may be volatile and adversely affected by several factors.

 

The market price of our common stock could fluctuate significantly in response to various factors and events, including:

 

  our ability to integrate operations, products and services;
     
  our ability to execute our business plan;
     
  operating results below expectations;
     
  litigation regarding product contamination;
     
  our issuance of additional securities, including debt or equity or a combination thereof, which will be necessary to fund our operating expenses;
     
  announcements of new or similar products by our competitors;
     
  loss of any strategic relationship, including raw material provider or distributor relationships;
     
  economic and other external factors; and
     
  period-to-period fluctuations in our financial results.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

 

There currently is a limited liquid trading market for our common stock and we cannot assure investors that a robust trading market will ever develop or be sustained for our common stock.

 

To date there has been a limited trading market for our common stock on the OTC Pink Marketplace. We cannot predict how liquid the market for our common stock may become. We have applied to list our common stock on NASDAQ. We believe the listing of our common stock on NASDAQ will be beneficial to us and our stockholders. However, while we believe that the NASDAQ listing will improve the liquidity of our common stock, it may not improve trading volume, reduce volatility or stabilize our share price. Should we fail to satisfy the initial listing requirements of NASDAQ, or if our common stock are otherwise rejected for listing, the trading price of our common stock could be subject to increased volatility and the trading market for our common stock may be less liquid. A lack of an active market may impair investors’ ability to sell their shares at the time they wish to sell them or at a price they consider reasonable. The lack of an active trading market may impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies by using our common stock as consideration. For companies whose securities are traded in the OTC Pink Marketplace, it is generally more difficult to obtain accurate quotations, to obtain coverage for significant news events (because major wire services generally do not publish press releases about such companies) and to obtain needed capital.

 

The trading in the Company shares will be regulated by Securities and Exchange Commission Rule 15g-9 which established the definition of a “penny stock.” The effective result is that fewer purchasers are qualified by their brokers to purchase its shares, and therefore a less liquid market for the investors to sell their shares. Therefore, you may have a difficult time selling your shares, or you may not be able to sell your shares at all, which could result in the loss of your investment.

 

The shares being offered are defined as a penny stock under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and rules of the SEC. The Exchange Act and such penny stock rules generally impose additional sales practice and disclosure requirements on broker-dealers who sell our securities to persons other than certain accredited investors who are, generally, institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with spouse), or in transactions not recommended by the broker-dealer. For transactions covered by the penny stock rules, a broker-dealer must make a suitability determination for each purchaser and receive the purchaser’s written agreement prior to the sale. In addition, the broker-dealer must make certain mandated disclosures in penny stock transactions, including the actual sale or purchase price and actual bid and offer quotations, the compensation to be received by the broker-dealer and certain associated persons, and deliver certain disclosures required by the Commission. Consequently, the penny stock rules may make it difficult or impossible for you to resell any shares you may purchase.

 

 19 
 

 

Our directors and officers will continue to exercise significant control over our operations.

 

As of the date of this prospectus, Neil Fallon, our Executive Director, owns 5,689,639 common shares and 225,000 Series A preferred shares, which carry voting rights of 500 common shares for every one preferred share, giving Neil Fallon total voting power of 118,189,639 common shares, which is equal to 80% of the combined voting power of the common and preferred stock. In aggregate, our management and board of directors, currently hold 82% of the combined voting power of our common and preferred stock and will hold 79% of the voting power of our common stock following this offering. The Series A preferred stock outstanding as of the date of this prospectus will be redeemed by us concurrent with our NASDAQ listing. Accordingly, our executive officers and directors will continue to have a significant influence in determining the outcome of all corporate transactions, including the election of directors, approval of significant corporate transactions, changes in control of the Company or other matters that could affect your ability to ever resell your Shares.  Their interests may differ from the interests of the other stockholders and thus result in corporate decisions that are disadvantageous to other stockholders.

 

A significant portion of our total outstanding shares of common stock may be sold into the public market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

 

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the market perception that the holders of a large number of shares of common stock intend to sell shares of common stock, could reduce the market price of our common stock. After this offering, we will have up to 29,011,494 shares of common stock outstanding based on the number of shares of common stock outstanding as of the date of this prospectus, plus 1,978,456 shares of common stock to be issued in connection with the conversion of Series B preferred shares. This amount includes the 4,285,714 shares of common stock that we are selling in this offering, at an offering price of $3.50 per share, which may be resold in the public market immediately, and shares of common stock that are eligible to be sold under exemptions to registration.

 

We may issue Preferred Stock with voting and conversion rights that could adversely affect the voting power of the holders of common stock.

 

Although we presently have no intention to do so without stockholder approval, which may be obtained solely through the votes of its management and board of directors, the Board may issue preferred stock with voting and conversion rights that could adversely affect the voting power of the holders of common stock. Any such provision may be deemed to have a potential anti-takeover effect, and the issuance of preferred stock in accordance with such provision may delay or prevent a change of control of the Company. The board of directors also may declare a dividend on any outstanding shares of preferred stock. All outstanding shares of preferred stock are fully paid and non-assessable.

 

Provisions of our charter documents could discourage an acquisition of our company that would benefit our stockholders and may have the effect of entrenching, and making it difficult to remove, management.

 

Provisions of our Articles of Incorporation and By-laws may make it more difficult for a third party to acquire control of us, even if a change in control would benefit our stockholders. In particular, shares of our preferred stock may be issued in the future without further stockholder approval and upon such terms and conditions, and having such rights, privileges and preferences, as our board of directors may determine, including, for example, rights to convert into our common stock. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any of our preferred stock that may be issued in the future. The issuance of our preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire control of us. This could limit the price that certain investors might be willing to pay in the future for shares of our common stock and discourage these investors from acquiring a majority of our common stock. Further, the existence of these corporate governance provisions could have the effect of entrenching management and making it more difficult to change our management.

 

We have not, and may never pay dividends to shareholders.

 

We have not declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

 

The declaration, payment and amount of any future dividends will be made at the discretion of the 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 as the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend. If we do not pay dividends, our common stock may be less valuable because a return on an investor’s investment will only occur if our stock price appreciates.

 

 20 
 

 

If you purchase shares of common stock in this offering, you will suffer immediate dilution of your investment.

 

The public offering price of our common stock will be substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. To the extent additional shares of common stock are subsequently issued, you will incur further dilution. At an offering price of $3.50 per share, you will experience immediate dilution of $4.91 per share, representing the difference between our as adjusted net tangible book value per share, after giving effect to this offering, and the assumed initial public offering price. In addition, purchasers of common stock in this offering will have contributed approximately 83% of the aggregate price paid by all purchasers of our stock but will own only approximately 17% of our common stock outstanding after this offering.

 

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

 

We cannot specify with certainty all of our potential uses for the estimated $13,656,846 in net proceeds we will receive from this offering. Our management will have broad discretion in the application of the net proceeds. Accordingly, you will have to rely upon the judgment of our management with respect to the use of the proceeds, with only limited information concerning management’s specific intentions. Our management may spend a portion or all of the net proceeds from this offering in ways that our stockholders may not desire or that may not yield a favorable return. The failure by our management to apply these funds effectively could harm our business. Pending its use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

 

Our failure to meet the continued listing requirements of NASDAQ could result in a delisting of our common stock.

 

If we are successful in having our common stock listed on NASDAQ, we will be required to satisfy the continued listing requirements. If we fail to satisfy the continued listing requirements of NASDAQ, such as the corporate governance requirements or the minimum closing bid price requirement, NASDAQ may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we would take actions to restore our compliance with NASDAQ listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the NASDAQ minimum bid price requirement or prevent future non-compliance with NASDAQ listing requirements.

 

If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.

 

The trading market for our common stock relies in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our common stock could decline if one or more equity analyst downgrades our stock or if analysts downgrade our stock or issue other unfavorable commentary or cease publishing reports about us or our business.

 

 21 
 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains projections and statements relating to us that constitute “forward-looking statements.” These forward-looking statements may be identified by the use of predictive, future-tense or forward-looking terminology, such as “intends,” “believes,” “anticipates,” “expects,” “estimates,” “may,” “will,” “might,” “outlook,” “could,” “would,” “pursue,” “target,” “project,” “plan,” “seek,” “should,” “assume,” or similar terms or the negatives thereof, although not all forward-looking statements contain those identifying words. Such statements speak only as of the date of such statement, and we undertake no ongoing obligation to update such statements. These statements appear in a number of places in this prospectus and include statements regarding the intent, belief or current expectations of the Company with respect to, among other things:

 

  trends affecting our financial condition, results of operations or future prospects;
     
  our growth strategies;
     
  our financing plans and forecasts;
     
  the factors that we expect to contribute to our success and our ability to be successful in the future;
     
  our business model and strategy for realizing positive results when sales begin;
     
  competition, including our ability to respond to such competition and its expectations regarding continued competition in the market in which we compete;
     
  expenses;
     
  our expectations with respect to continued disruptions in the global capital markets and reduced levels of user spending and the impact of these trends on its financial results;
     
  our ability to meet our projected operating expenditures and the costs associated with development of new projects;
     
  our ability to pay dividends or to pay any specific rate of dividends, if declared;
     
  the impact of new accounting pronouncements on its financial statements;
     
  our market risk exposure and efforts to minimize risk;
     
  development opportunities and its ability to successfully take advantage of such opportunities;
     
  regulations, including anticipated taxes, tax credits or tax refunds expected; and
     
  the outcome of various tax audits and assessments, including appeals thereof, timing of resolution of such audits, our estimate as to the amount of taxes that will ultimately be owed and the impact of these audits on our financial statements.

 

Potential investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that, should conditions change or should any one or more of the risks or uncertainties materialize or should any of the underlying assumptions prove incorrect, actual results may differ materially from those projected in the forward-looking statements as a result of various factors, some of which are unknown. The factors that could adversely affect the actual results and performance of the Company include the fact that:

 

  growth of operations will depend on the acceptance of our products and consumer discretionary spending;
     
  we have limited management resources and are dependent on key executives;
     
  competition that we face is varied and strong;
     
  we depend on a limited number of suppliers of raw and packaging materials;
     
  we depend on a small number of large retailers for a significant portion of our sales;
     
  we depend on third party manufacturers for a portion of our business;
     
  failure of third party distributors upon which we rely could adversely affect our business;
     
  we are subject to seasonality related to the sales of our products;
     
  we may fail to comply with applicable government laws and regulations;
     
  we face various operating hazards that could result in the reduction of our operations; and
     
  litigation and publicity concerning product quality, health and other issues could adversely affect our results of operations, business and financial condition;

 

Potential investors are urged to carefully consider such factors. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements and the “Risk Factors” described herein.

 

 22 
 

 

USE OF PROCEEDS

 

We estimate that the net proceeds from our issuance and sale of shares of our common stock in this offering will be approximately $13,656,846, at a public offering price of $3.50 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us in this offering. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds from this offering will be approximately $15,749,346.

 

We intend to use substantially all of the net proceeds from this offering to fund business operations, including the development and sale of our products, and for working capital and general corporate purposes, to repay a $4,500,000 promissory note issued in connection with our Xing acquisition, and to repay a promissory note in an amount of $60,000 owed to Chuck Santry, a former member of management, which was received for working capital purposes. The promissory note related to our Xing acquisition accrues interest at a rate of 1.00% per annum, which shall begin to accrue on January 1, 2017. Interest shall be due and payable in arrears on the first day of each month beginning on February 1, 2017 through the maturity date. The maturity date of the $4,500,000 promissory note is June 30, 2017. The $60,000 promissory note bears interest at 10% per annum and is due and payable beginning June 30, 2015 maturing on March 31, 2020. Payments of interest are required quarterly. Should the Company be successful in raising $2,000,000 or more in funding the entire balance of the note will be due immediately.

 

This expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering.

 

Pending their use, we plan to invest the net proceeds in investment-grade, short-term, interest-bearing securities.

 

 23 
 

 

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Through February 13, 2017, our common stock has been quoted on the OTC Pink market, under the symbol “NBEV”. As of February 14, 2017, our common stock has been approved for listing on NASDAQ under the symbol “NBEV”.

 

The following table sets forth the range of high and low bid prices of our common stock as reported and summarized on the OTC Pink market, as applicable, for the periods indicated. These prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.

 

Calendar Quarter   High     Low  
2014                
2014 First Quarter   N/A     $   N/A  
2014 Second Quarter   $ N/A     $   N/A  
2014 Third Quarter   $ 0.75     $ 0.62  
2014 Fourth Quarter   $ 0.35     $ 0.33  
2015                
2015 First Quarter   $ 0.38     $ 0.35  
2015 Second Quarter   $ 0.46     $ 0.42  
2015 Third Quarter   $ 0.40     $ 0.40  
2015 Fourth Quarter   $ 0.39     $ 0.39  
2016                
2016 First Quarter   $ 0.36     $ 0.34  
2016 Second Quarter   $ 1.64     $ 1.42  
2016 Third Quarter   $ 1.70     $ 1.60  
2016 Fourth Quarter   $ 4.18     $ 3.95  
2017                

2017 First Quarter (through February 13, 2017)

  $

5.84

    $

5.13

 

 

Holders of Our Common Stock 

 

As of the date of this prospectus, we have 861 holders of common stock and there are 22,747,324 shares of our common stock outstanding.

 

 24 
 

 

DIVIDEND POLICY

 

We have never declared or paid any cash dividends on our common stock and we do not anticipate paying any cash dividends on our common stock for the foreseeable future. The payment of dividends on common stock, if any, in the future is within the discretion of our board of directors and will depend on our earnings, capital requirements and financial condition and other relevant facts. We currently intend to retain all future earnings, if any, to finance the development and growth of our business.

 

 25 
 

 

CAPITALIZATION

 

The following table presents a summary of our cash and cash equivalents and capitalization as of September 30, 2016:

 

  on an actual basis; and
     
  on an as adjusted basis to give effect to the issuance and sale of 4,285,714 shares of our common stock in this offering at the public offering price of $3.50 per share less underwriting discounts and commissions and estimated offering expenses payable by us.

 

The unaudited as adjusted information below is prepared for illustrative purposes only and our capitalization following the completion of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read the following table in conjunction with “Selected Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes thereto included elsewhere in this prospectus.

 

    September 30, 2016     As Adjusted  
    (unaudited)        
             
ASSETS                
Cash and cash equivalents   $ 267,784     $

15,267,784

 
Long-Term Liabilities   $ 9,988,934     $ 9,988,934  
Stockholders' Equity                
Common stock, $0.001 par value, 50,000,000 shares authorized; 21,900,106 shares issued and outstanding   $ 21,900   $

29,011

 
Series A Preferred stock, $0.001 par value: 250,000 shares authorized, 250,000 shares issued and outstanding     250       250  
Series B Preferred stock, $0.001 par value: 300,000 shares authorized, 284,807 shares issued and outstanding     285     0  
Additional paid-in capital     12,021,177    

27,019,677

Accumulated deficit     (5,453,492 )     (5,453,492 )
Total stockholders' equity     6,590,120      

21,595,446

 

 

The impact to the common stock, Series B preferred shares and additional paid-in capital immediately after this offering is as follows:

 

A. Series B Preferred Shares (247,307 as of the date of this prospectus) will be converted to common stock, concurrent with the offering, at a rate of 8:1. Post offering, no Series B Preferred Shares will be outstanding.

 

B. Common stock as adjusted:

 

Shares of common stock prior to this offering, as noted above  22,747,324     
Shares included in this offering  4,285,714     
Shares issued with the conversion of Series B (247,307 shares at 8:1 conversion)  1,978,456     
          
As adjusted common shares, issued and outstanding, par $0.001  29,011,494   $

29,011

 
          
C. Additional paid-in capital:         
          
Additional paid-in capital prior to this offering: $12,021,177      
Increase in paid-in capital with offering  

14,998,500

     
          
As adjusted additional paid-in capital $

27,019,677

      

 

The increase in the additional paid-in capital reflects shares being offered:

 

Shares included in offering:  4,285,714 
Offering price $3.50 
Total offering  15,000,000 
Par $0.001  1,250 

Increase in additional paid-in capital

$

14,998,500

 

 

The number of shares of our common stock that will be outstanding immediately after this offering is based on 22,747,324 shares of our common stock outstanding as of February 13, 2017, plus 1,978,456 shares of common stock to be issued in connection with the conversion of Series B preferred shares, and excludes:

 

  1,600,000 shares of our common stock reserved for future issuance under our 2016/2017 Long-Term Incentive Plan; and
     
 

267,857 shares of common stock issuable upon exercise of the warrants issued to the representatives in connection with this offering.

 

 26 
 

 

DILUTION

 

If you purchase shares in this offering your interest will be diluted immediately to the extent of the difference between the public offering price of $3.50 per share and the as adjusted net tangible book value per share of our common stock immediately following this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers in this offering and the as adjusted net tangible book value per share of common stock immediately after completion of this offering.

 

Our net tangible book value as of September 30, 2016 was approximately ($3,058,921), or approximately ($0.14) per share. Net tangible book value per share represents our total tangible assets less total tangible liabilities, excluding goodwill and customer relationship intangibles, divided by the number of shares of common stock outstanding as of February 13, 2017.

 

After giving effect to the sale of shares of our common stock in this offering at an offering price of $3.50 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of September 30, 2016, would have been $11,941,078, or $0.41 per share. This represents an immediate increase in as adjusted net tangible book value of approximately $0.55 per share to our existing stockholders, and an immediate dilution of $3.09 per share to purchasers of shares in this offering, as illustrated in the following table:

 

Assumed public offering price per share      $

3.50

 

Net tangible book value per share as of September 30, 2016

  $

(0.14

)     
Increase per share attributable to new investors  $

0.55

      
As adjusted net tangible book value per share after this offering      $

0.41

 
Dilution per share to new investors in the offering       $

3.09

 

 

If the underwriters exercise their over-allotment option in full, the as adjusted net tangible book value will increase to $0.48 per share, representing an immediate dilution of $3.02 per share to new investors, assuming that the assumed public offering price remains the same and after deducting underwriting discounts and commissions and the estimated offering expenses payable by us.

 

The number of shares of our common stock that will be outstanding immediately after this offering is based on 22,747,324 shares of our common stock outstanding as of February 13, 2017, plus 1,978,456 shares of common stock to be issued in connection with the conversion of Series B preferred shares, and excludes:

 

 

1,600,000 shares of our common stock reserved for future issuance under our 2016/2017 Long-Term Incentive Plan; and

     
  267,857 shares of common stock issuable upon exercise of the warrants issued to the representatives in connection with this offering.

 

 27 
 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “Selected Financial Data” and our financial statements and related notes included elsewhere in this Information Statement. Some of the information contained in this discussion and analysis or set forth elsewhere in this Information Statement, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those described below. You should read the “Risk Factors” section of this Information Statement for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Overview

 

We are a healthy functional beverage company engaged in the development, marketing, sales and distribution of a portfolio of RTD better-for-you beverages including competitive entrants currently in the kombucha, RTD tea, premium bottled water, and energy drinks segments. We differentiate our brands through functional characteristics and ingredients and offer all natural and organic products, with no HFCS, no GMOs, no preservatives, and only all natural flavors, fruits, and ingredients. We manufacture of products in our own fully-integrated manufacturing facilities and through a network of six additional manufacturers strategically located throughout the United States. Our products are currently distributed in in 10 countries internationally, and in 46 states domestically through a hybrid of four routes to market including our own DSD system that reaches more than 4,500 outlets, and to more than 10,000 other outlets throughout the United States directly through customer’s warehouses, through our network of DSD partners, and through our network of brokers and natural product distributors. Our products are sold through multiple channels including major grocery retail, natural food retail, specialty outlets, hypermarkets, club stores, pharmacies, convenience stores and gas stations. We market our products using a range of marketing mediums including in-store merchandising and promotions, experiential marketing, events, and sponsorships, digital marketing and social media, direct marketing, and traditional media including print, radio, outdoor, and TV.

 

Highlights

 

We generate revenue through the commercialization of our portfolio of brands to consumers via our retailer partners. The following are highlights of our operating results for the nine months ended September 30, 2016, as well as for the years ended December 31, 2015 and 2014 on a standalone, pre-acquisition basis:

 

The following are highlights of our operating results for the nine months ended September 30, 2016:

 

  ● 

Revenue. During the nine month period ended September 30, 2016, we generated revenue of $14,757,552. Our revenue for the period is primarily attributed to our acquisition of the Xing brands and the related increase in demand for Xing products, as well as expanded distribution on the Búcha Live Kombucha brand.

     
 

Gross Margin. Gross margin was 21.2%, and gross profit was $3,127,959 for the nine months ended September 30, 2016. Our margin during the nine months ended September 30, 2016 was due to a trending improvement in cost of goods sold related to raw material sourcing. Cost of goods sold remains the Company’s most significant opportunity to improve net profitability. Our cost of goods sold for the nine months ended September 30, 2016, was $11,629,593. As part of the newly integrated Company, we are pursuing a top to bottom review of every cost input and pursuing all potential cost synergies from the combination of our prior business with the newly acquired Xing brands.

     
 

Operating expenses. During the nine months ended September 30, 2016, our operating expenses were $5,051,343. Our operating expenses related to an increased employee base in the Xing division of our business, in addition to one-time expenses associated with the acquisition of Xing that are not expected to be repeated in future periods.

 

We believe that as a result of the Xing acquisition, our revenue and gross profit will continue to be higher than reported in prior periods. Historically, prior to the acquisition, our cash generated from operations has not been sufficient to meet our expenses. The newly acquired Xing brands, however, generated $222,680 of net income for the year ended December 31, 2014, and $772,308 in net income for the year ended December 31, 2015. We believe that on a consolidated basis, and with the reductions in operating expenses for the Búcha division, the integrated company will generate sufficient cash flow internally to meet its needs. In addition, as part of the financing of the acquisition, we entered into two Credit Agreements on June 30, 2016, whereby we are able to borrow up to $5,900,000 (the “Revolving Commitment Amount”) under a revolving credit line, and whereby we borrowed an additional $4,800,000 under a loan. Each loan amount under the revolving credit line shall accrue interest at an annual rate equal to the Applicable Margin, which ranges from 2.25% to 3.00%, plus the Daily Reset LIBOR Rate. For the revolving credit line, upon an event of default related to a bankruptcy event, the obligations of the lender shall immediately terminate and all loan amounts shall become due and payable. Upon any other event of default under the revolving credit line, the lender may terminate or suspend the obligations of the lender to make loans under the agreement, or declare the loan to be due and payable, or both. During the continuance of an event of default, the loan(s) shall accrue interest at a rate of 5% per annum. As of September 30, 2016, there was $5,800,000 outstanding. With respect to the $4,800,000 loan, of which $4,800,000 is outstanding, all amounts owed shall accrue interest at 4.02% per annum, and the entire loan shall become due and payable on June 30, 2021. Upon an event of default under the loan, the lender may require that the entire loan become due and payable.

 

 28 
 

 

The following are highlights of our operating results for the nine months ended September 30, 2016 and 2015:

 

  ●  Revenue. During the nine months ended September 30, 2016, we generated revenue of $14,757,552 , an increase of $12,877,690 over our combined revenue of $1,879,862 for the nine months ended September 30, 2015 (Successor and Predecessor). This increase was offset by increases in discounts and other chargebacks taken by our customers. For the nine months ended September 30, 2016, total discounts and chargebacks taken by our customers was $236,245. Had it not been for such discounts and chargebacks, we would have reported revenue of $14,993,797 for the nine months ended September 30, 2016.
     
  Gross Margin. Gross margin for the nine months ended September 30, 2016 was 21.2%, a decrease of 4.6% from our gross margin of 25.8% for the nine months ended September 30, 2015 (Successor and Predecessor). The decrease in gross margin was due to several factors, including (1) an increase in gross sales before taking into consideration higher discounts and chargebacks, (2) increased freight costs and manufacturing labor, (3) an increase in raw material and packaging supply costs without a corresponding increase in sale prices, and (4) amortization of customer relationships.
     
 

Operating Expenses. During the nine months ended September 30, 2016, our operating expenses were $5,051,343, an increase of $4,096,668 as compared to the nine months ended September 30, 2015 (Successor and Predecessor). The increase was attributable to (1) transactional costs totaling $1,412,111, and (2) the gain recognized in the 2015 period upon the forgiveness of accrued payroll. On a pro forma basis, which does not include nonrecurring costs of $1,412,111 attributable to our Xing acquisition, our operating expenses were $8,005,060 for the nine month period ended September 30, 2016.

 

The following are highlights of our operating results for the years ended December 31, 2015 and 2014, on a pre-acquisition, standalone basis:

 

  Revenue. During the year ended December 31, 2015, we generated revenue of $2,421,752, as compared to $2,789,936 for the year ended December 31, 2014, a decrease of $368,184. The decrease in revenue was primarily due to the discontinuation of the Costco business. Due to the low margins of this business, we decided to discontinue selling to this customer. Secondarily, due to the effects of the sales transition from the Predecessor company for the six months prior to our acquisition of the búcha® Live Kombucha in April 2015, our sales were impacted during the period.
     
  Gross Margin. Gross margin for the year ended December 31, 2015 was 17.1%, which was down 14.4% from our gross margin of 31.5% for the year ended December 31, 2014. The decrease in the gross margin was due to several factors, including (1) how we have chosen to account for freight and delivery costs, (2) manufacturing labor, and (3) promotional expenses in costs of goods sold. A secondary contributing factor included having to absorb all raw material and packaging supply cost increases while not being able to increase sale prices.
     
  Operating Expenses. During the year ended December 31, 2015, our operating expenses were $1,244,809, as compared to $1,644,362 for the year ended December 31, 2014. The change in operating expenses was primarily related to the following factors: (1) in April 2015, two of our officers agreed to forgive $500,000 of the $600,000 in accrued officer compensation, and (2) for the year ended December 31, 2014, we incurred considerably more expenses across most categories of advertising and marketing expenses, including higher salaries, marketing design, demos and tradeshows.

 

Recent Developments

 

On January 10, 2017, our wholly owned subsidiary, NABC Properties, LLC, entered into a Purchase and Sale Agreement with an unaffiliated third party. Pursuant to the agreement, NABC Properties, LLC sold the property located at 1700 E 68th Avenue, Denver, CO 80229 for a purchase price of $8,900,000. $100,000 of the purchase price was paid upon execution of the agreement, with the balance of $8,800,000 to be paid on or before March 6, 2017. The agreement contains a lease back provision, whereby NABC Properties, LLC shall lease the property for an initial term of ten years, with an option to extend for two successive five year periods. The lease cost is $52,000 per month for the initial year, with two percent annual increases.

 

Uncertainties in our Business

 

We believe that the key uncertainties in our business are as follows:

 

    We believe that expanding our marketing team, which may result in significant advertising expenses, will be necessary in order to increase product awareness in order to compete with our competitors, including large and well established brands with access to significant capital resources
     
  Customer trends and tastes can change for a variety of reasons including health consciousness, government regulations and variation in demographics. We will need to be able to adapt to changing preferences in the future.
     
    Our sales growth is dependent upon maintaining our relationships with existing and future customers, which includes sales to large retailers.

 

Successor and Predecessor Financial Presentation

 

Throughout the financial statements and in this Management’s Discussion and Analysis of Financial Condition and Results of Operation section, we refer to “Successor” and “Predecessor”. For periods after the acquisition of the Búcha® Live Kombucha brand (since April 1, 2015), our operating results and cash flows are referred to as Successor. For periods prior to the acquisition of the Búcha® Live Kombucha brand, our operating results and cash flows are referred to as Predecessor. Where tables are presented in this MD&A, a black line separates the Successor and Predecessor financial information to highlight the lack of comparability between the periods.

 

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Results of Operations

 

The remainder of this MD&A discusses our continuing operations of the newly combined entity including all of the Company's brands. The comparisons on a three months basis for 2016 are of the newly combined entity versus the Bucha, Inc. standalone company in 2015. The nine months comparisons include the breakout of three months of the combined new entity and six months of the Búcha standalone for 2016, compared to Búcha standalone for six months of 2015, and three months (the first three months of the year) of the predecessor company, B&R Liquid Adventure. Where tables are presented, a black line separates the Successor and Predecessor financial information to highlight the lack of comparability between the periods. See further discussion under "Successor and Predecessor Financial Presentation" above.

 

For the three months ended September 30, 2016 (newly Combined Entity) compared to the three months ended September 30, 2015 (Successor)

 

   

Three Months
Ended
September 30, 2016

   

Three Months
Ended
September 30, 2015

 
             
Net revenue   $ 13,482,012     $ 611,014  
Cost of goods sold     10,529,464       458,873  
Gross profit     2,952,548       152,141  
Operating expenses     2,657,680       467,507  
Other expenses     131,072       23,914  
Net income (loss) from continuing operations     163,796       (339,280 )
Income from discontinued operations     -       50,642  
Net income (loss)   $ 163,796     $ (288,638 )

 

Revenues

 

Revenues for the three months ended September 30, 2016 were $13,482,012 vs. $611,014 for the three months ended September 30, 2015.  Net revenues from the sale of our product (sales less deductions, discounts and chargebacks) achieved $13,482,012 vs. $611,014 for the three months ended September 30, 2015.  The primary reason for the significant increase was the acquisition of New Age on June 30, 2016.

 

Sales during the three months ended September 30, 2016 for the portfolio on a proforma basis increased 10.1%, with all brands and divisions growing led by the Búcha® Live Kombucha brand that was up 40.2% vs. the three month period in the prior year.   The primary reason for the significant increase was the penetration of Búcha® Live Kombucha into the New Age Distribution system, national distribution expansion of the entire portfolio, and continued expansion of the New Age DSD division in Colorado.

 

In the planning of the acquisition and combination between Búcha, Inc. and Xing, numerous revenue synergies were identified that included sales of the Búcha brand in Xing national/regional accounts, sale of the Búcha® brand through New Age DSD system, and sale of the XingTea® Brand in Búcha, Inc. national/regional accounts.  Capturing of these synergies have manifested in immediate value reflected in the net sales growth for the quarter, and are expected to continue with the impact of increased distribution to more than 2,000 new accounts that have been added across the portfolio during the third quarter.

 

Cost of Goods Sold

 

    Three months
Ended
September 30, 2016
    Three months
Ended
September 30, 2015
 
Production costs/labor   $ 9,870,056     $ 374,258  
Freight expense     645,977       84,615  
Storage/other     13,431        -  
Cost of goods sold   $ 10,529,464     $ 458,873  

 

Total cost of goods sold for the three months ended September 30, 2016 was $10,529,464 as compared to $458,873 for the three months ended September 30, 2015.  The primary reason for the significant increase was the acquisition of New Age on June 30, 2016.

 

As a percentage of sales, total cost of goods sold was 78.1% for the three months ended September 30, 2016 (gross margin of 21.9 %).  Production costs were $9,870,056 for the three months ended September 30, 2016, as compared to $374,258 for the three months ended September 30, 2015.  Freight expense also improved significantly to 4.8% of net sales for the three months ended September 30, 2016, versus 13.8% in the prior year period.

 

The increase in the gross margin was due to several factors, including (1) a significant increase in gross and net sales, (2) significantly increased scale and efficiencies that led to lower freight costs and transportation costs, and (3) an improvement in the production processes of some of our key products that led to lower overall manufacturing costs.

 

 30 
 

 

Improvement in costs of goods sold is one of the Company's major priorities, and numerous improvement opportunities across each brand have been identified and action plans emplaced to improve gross margins, have already begun to positively impact gross margin, and are expected to significantly impact gross margin in 2017.

 

Operating Expenses

 

   

Three months
ended

   

Three months
ended

 
    September 30, 2016     September 30, 2015  
Advertising, promotion and selling   $ 708,174     $ 126,420  
General and administrative     1,798,798       277,567  
Legal and professional     150,708       63,520  
Total operating expenses   $ 2,657,680     $ 467,507  

 

Total operating expenses for the three months ended September 30, 2016 was $2,657,680, as compared to $467,507 for the three months ended September 30, 2015.  The primary reason for the significant increase was the acquisition of Xing on June 30, 2016.  In addition to the impact of the operating costs of a substantially larger scale enterprise, a significant amount of the increase was also attributable to the transactional costs recognized when acquiring Xing, and numerous other one-time, non-recurring legal and other expenses associated with the integration.

 

On October 1, 2015, we sold our brewery and micro-brew operations, which has been classified as a discontinued operation. These discontinued operations generated net income of $50,642 for the three months ended September 30, 2015 (Predecessor). During 2016, we did not have any discontinued operations.

 

In the planning of .the acquisition and combination between Búcha, Inc and Xing, numerous cost synergies were identified that included reduction of freight expenses, improvement in cost of goods sold in both packaging and raw material sourcing, and numerous improvements in operating expenses including elimination of overlapping headcount and other duplicative expenses.    Capturing of these synergies have manifested in immediate value reflected in the cost of goods sold improvement for the quarter, and are expected to continue with the impact of elimination of headcount from Búcha, Inc, further COGS savings that take time to materialize, and further operating expense improvements resulting from new processes emplaced during the quarter.

 

For the nine months ended September 30, 2016 (Successor) compared to the six months ended September 30, 2015 (Successor) and the three months ended March 31, 2015 (Predecessor)

 

    Nine months
Ended
September 30, 2016
    Six Months
Ended
September 30, 2015
    Three Months
Ended
March 31, 2015
 
    Successor     Successor     Predecessor  
                   
                   
Revenue   $ 14,757,552     $ 1,302,999     $ 576,863  
Cost of goods sold     11,629,593       981,336       413,582  
Gross profit     3,127,959       321,663       163,281  
Operating expenses     5,051,343       721,666       233,009  
Other expenses     (198,230      97,107       2,294  
Loss from continued operations     (2,121,614 )     (497,110 )     (72,022 )
Income for discontinued operations      -       133,814       -  
Net income (loss)   $ (2,121,614 )   $ (363,296 )   $ (72,022 )

Revenues

 

Net revenues (minus discounts and chargebacks) for the nine months ended September 30, 2016 (3 months of combined company results plus 6 months of Búcha, Inc. standalone) were $14,757,551 vs.  $1,879,862 in the nine months ended September 30, 2015 (includes 6 months of Búcha, Inc. standalone plus 3 months of sales from the predecessor company).   The primary reason for the significant increase was the acquisition of New Age on June 30, 2016, and overall growth of the business.

 

Cost of Goods Sold

 

    Nine months
Ended
September 30, 2016
    Six Months
Ended
September 30, 2015
   

Three Months
Ended
March 31,2015

 
    Successor     Successor     Predecessor  
Production costs/labor   $ 10,744,986     $ 822,896     $ 408,482  
Freight expense     842,940       158,440       5,100  
Storage/other     41,667       -       -  
Cost of goods sold   $ 11,629,593     $ 981,336     $ 413,582  

 

Total cost of goods sold for the nine months ended September 30, 2016 was $11,629,593 vs. $1,394,918 in the nine months ended September 30, 2015 (six months of Búcha, Inc. standalone plus three months of the predecessor company results).   The primary reason for the significant increase was the acquisition of New Age on June 30, 2016, and overall growth of the business.  This increase in cost of sales is consistent with the performance of the current quarter.

 

Our gross margins for the nine months ended September 30, 2016 (Successor) was 21.2% vs. 21.9% in the current quarter, reflective of the recent improvements in cost of revenues sold and freight.

 

Operating Expenses

 

    Nine months
Ended
September 30, 2016
    Six Months
Ended
September 30, 2015
    Three Months
Ended
March 31, 2015
 
    Successor     Successor     Predecessor  
Advertising, promotion and selling   $ 906,009     $ 214,701     $ 51,516  
General and administrative     2,819,226       835,471       134,124  
Gain on forgiveness of accrued payroll      -       (500,000 )      -  
Legal and professional     1,326,108       171,494       47,369  
Total operating expenses   $ 5,051,343     $ 721,666     $ 233,009  

 

Total operating expenses for the nine months ended September 30, 2016 (Successor) were $5,051,343, as compared to $954,675 for the nine months ended September 30, 2015 (Successor and Predecessor combined). The primary reason for the significant increase was the acquisition of New Age on June 30, 2016, and overall growth of the business.  In addition to the impact of the operating costs of a substantially larger scale enterprise, a significant amount of the increase was also attributable to the transactional costs recognized when acquiring New Age, and numerous other one-time, non-recurring legal and other expenses associated with the integration.

 

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For the year ended December 31, 2015 and the year ended December 31, 2014

 

The following discussion represents a comparison of our results of operations for the year ended December 31, 2015, which includes the results of operations for the nine months ended December 31, 2015 (Successor) plus the three months ended March 31, 2015 (Predecessor) compared to the year ended December 31, 2014 (Predecessor). The results of operations for the periods shown in our audited financial statements, including the periods shown as Successor and Predecessor, are not necessarily indicative of operating results for the entire period. In the opinion of management, the audited financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented.

 

   Nine Months
Ended
December 31, 2015
Successor
   Three Months
Ended
March 31, 2015
Predecessor
   Year Ended
December 31, 2014
Predecessor
 
             
Net revenues  $1,844,889   $576,863   $2,789,936 
Cost of goods sold   1,606,141    402,235    1,911,932 
 Gross Profit   238,748    174,628    878,004 
Operating expenses   1,000,453    244,356    1,644,362 
Other expenses   138,987    2,294    125,077 
Net loss from continuing operation  $(900,692)  $(72,022)  $(891,435)

 

Revenues

 

Net revenues from sales of our product for the year ended December 31, 2015 were $2,421,752, as compared to $2,789,936 for the year ended December 31, 2014, a decrease of $368,184, or 13.2%. The decrease in sales is primarily due to the discontinuation of Costco business. Due to the low margins of this business, we decided to discontinue selling to this customer. Secondarily, due to the effects of the sales transition from the Predecessor company for the six months prior to our acquisition of the búcha® Live Kombucha in April 2015, our sales were impacted for the current nine months ended December 31, 2015. We are already back in consideration for many of those accounts impacted by the transition, and we believe that we have the ability to recapture that business and those accounts in future periods. However, there is no guarantee of the timing or certainty of that occurring.

 

Cost of Goods Sold

 

    Nine Months Ended
December 31, 2015
Successor
    Three Months Ended
March 31, 2015
Predecessor
    Year
Ended
December 31, 2014
Predecessor
 
                   
Production costs/labor/freight   $ 1,504,471     $ 397,135     $ 1,892,006  
Depreciation   39,170       5,100       19,926  
Amortization of customer relationships     62,500       -       -  
Total cost of goods sold   $ 1,606,141     $ 402,235     $ 1,911,932  

 

Cost of goods sold is comprised of production costs, manufacturing labor, freight and depreciation and amortization. Total cost of goods sold for the nine months ended December 31, 2015 (Successor) was $1,606,141, and for the three months ended March 31, 2015 (Predecessor) of $402,235 compared to $1,911,932 for the year ended December 31, 2014 (Predecessor), an increase of $96,444 in the aggregate. However, as a percentage of sales, total cost of goods sold was 87.1% for the nine months ended December 31, 2015 (Successor) December 31, 2015 (gross margin of 12.9%) and 69.7% (gross margin 30.3%) for the three months ended March 31, 2015 (Predecessor) compared to 68.5% for the year ended December 31, 2014 (Predecessor) (gross margin of 31.5%). Production costs, excluding depreciation and amortization, were $1,504,471 for the nine months ended December 31, 2015 (Successor), as compared to $1,892,006 for the year ended December 31, 2014, a decrease of $387,535. As a percentage of sales, production costs, excluding depreciation and amortization, were 81.5% for the nine months ended December 31, 2015 (Successor), as compared to 67.8% for the year ended December 31, 2014, and 68.8% for the three months ended March 31, 2015 (Predecessor).

 

The decrease in the gross margin is due to several factors, primarily related to how we have chosen to account for freight and delivery costs, manufacturing labor, and promotional expenses in costs of goods sold. A secondary contributing factor included having to absorb all raw material and packaging supply cost increases while not being able to increase sale prices. In addition, promotional expenses were increased to counter the effects of the Predecessor’s cessation of support to the brokers.

 

Acquisition accounting rules require the evaluation of the tangible and intangible assets acquired in an Acquisition with such identifiable assets to be recorded at their fair market value. Customer relationships were evaluated as part of our Acquisition and were determined to have a fair market value of $250,000. Amortization expense is computed on a straight-line basis of three years determined to be the useful life. Amortization expense was $62,500 for the nine months ended December 31, 2015 (Successor) and is classified as cost of goods sold in the statements of operations.

 

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Operating Expenses

 

    Nine Months Ended
December 31, 2015
Successor
    Three Months Ended
March 31, 2015
Predecessor
    Year Ended December 31, 2014
Predecessor
 
                   
Advertising, promotion and selling   $ 209,109     $ 51,516     $ 578,970  
General and administrative     1,065,954       145,469       595,199  
Gain on forgiveness of accrued payroll     (500,000 )     -       -  
Legal and professional     225,390       47,371       470,193  
Total operating expenses   $ 1,000,453     $ 244,356     $ 1,644,362  

 

Total operating expenses for the year ended December 31, 2015 was $1,244,809, as compared to $1,644,362 for the year ended December 31, 2014, a decrease of $399,553, or 24.3%. In April 2015, two of our officers agreed to forgive $500,000 of the $600,000 in accrued officer compensation. This resulted in recognizing a gain of $500,000 on forgiveness of accrued payroll during the nine months ended December 31, 2015. Excluding the gain on forgiveness of accrued payroll, total operating expenses actually increased by $100,447, or 6.1%, as shown in the table below:

 

   Increase/
(Decrease)
 
     
Advertising, promotion and selling  $(318,345)
General and administrative   616,224 
Legal and professional:     
Legal fees   (319,365)
Professional fees, including audit and accounting   121,933 
   $100,447 

 

Advertising, promotion and selling expenses for the year ended December 31, 2015 were $260,625, as compared to $578,970 for the year ended December 31, 2014, a decrease of $318,345. For the year ended December 31, 2014, the Predecessor company incurred considerably more expenses across most categories of advertising and marketing expenses, including higher salaries, marketing design, demos and tradeshows. In addition, broker commissions were higher by $112,000 for the year ended December 31, 2014.

 

General and administrative expenses for the year ended December 31, 2015 were $1,211,423, as compared to $595,199 for the year ended December 31, 2014, an increase of $616,224. Contributing to this increase for year ended December 31, 2015 was stock based compensation totaling $350,703. In addition, we paid higher management and executive salaries and payroll related costs and benefits during the year ended December 31, 2015.

 

Legal and professional fees are broken out for discussion purposes. Legal fees for the year ended December 31, 2015 were $66,419, as compared to $385,784 for the year ended December 31, 2014, a decrease of $319,365. This decrease is due primarily to an award of attorneys’ fees against the Predecessor during the year ended December 31, 2014 in a lawsuit where it was the defendant, as well as their own legal fees defending in the matter. During the three months ended March 31, 2015, the parties settled the case with the Predecessor agreeing to pay $275,000 in full and final settlement of the case.

 

Professional fees for the year ended December 31, 2015 were $206,342 compared to $84,409 for the year ended December 31, 2014, an offsetting increase of $121,933. This is related primarily to audits, accounting and outside consulting services related to being a public reporting company, which also required an audit of the Predecessor company for SEC reporting purposes by the Company.

 

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Other Expenses

 

   Nine Months Ended
December 31, 2015
Successor
   Three Months Ended
March 31, 2015
Predecessor
   Year Ended December 31, 2014
Predecessor
 
             
Interest expense:               
Interest expense  $36,453   $2,294   $5,169 
Amortization of debt discount   68,466    -    120,000 
    104,919    2,294    125,169 
Factoring interest and fees   34,069    -    - 
Interest income   (1)   -    (92)
Total other expenses  $138,987   $2,294   $125,077 

 

Interest expense for the year ended December 31, 2015 was $107,213, as compared to $125,169 for the year ended December 31, 2014, a decrease of $17,956. Included in interest expense for the year ended December 31, 2014 is $120,000 related to the amortization of a debt discount. In September 2014, in connection with new funding of $120,000, the Predecessor issued four promissory notes with equity participation. In accordance with accounting guidance for beneficial conversion features (BCF), the Predecessor recorded a debt discount of $120,000 representing the BCF intrinsic value. The entire debt discount was amortized to interest expense during the year ended December 31, 2014.

 

Aggregate amortization of debt discounts on third party and related party debt was $68,466 for the year ended December 31, 2015 related to four loans entered into in March 2015:

 

We entered into two 60-day promissory notes for cash proceeds of $50,000 each. The notes included an equity payment totaling 30,000 shares of common stock that were issued with the debt. The relative fair value of the stock was determined to be $9,020 and was recorded as a debt discount.
   
We borrowed $200,000 used for the Acquisition. The note was issued in conjunction with an equity payment totaling 176,734 shares of Series B preferred stock that was issued with the debt. The relative fair value of the stock was determined to be $142,434 and was recorded as a debt discount. The discount will be amortized over the life of the loans to interest expense.
   
We entered into a 60 day-promissory note for cash proceeds of $50,000 with a member of management. The note also included an equity payment of 200,000 shares of common stock that were issued with the debt. The relative fair value of the stock was determined to be $29,420 and was recorded as a debt discount.
   

We borrowed $60,000 from Chuck Santry, a former member of management. The note was issued in conjunction with an equity payment totaling 53,073 shares of Series B preferred stock that was issued with the debt. The relative fair value of the stock was determined to be $42,742 and was recorded as a debt discount. The discount will be amortized over the life of the loans to interest expense.

 

In April 2015, we entered into a factoring agreement to sell, with recourse, certain receivables to an unrelated third-party financial institution. Under the terms of the factoring agreement, we receive an advance of 80% of qualified receivables and are subject to the requirement that the maximum amount of outstanding advances at any one time will not exceed $500,000. For the nine months ended December 31, 2015 (Successor), we recognized factoring interest and fees of $34,069. We pay factoring fees associated with the sale of receivables at the rate of 0.67% of the gross face value of the receivable for every ten-day period or fraction thereof from the date of the advance until the receivable is paid in full.

 

Liquidity and Capital Resources

 

As of September 30, 2016, we had cash of $267,784.

 

The acquisition of Xing substantially improved the Company’s resources. With the profitability of the new acquisition, we believe we have sufficient cash and generate sufficient profitability to meet the needs of the combined operation. We estimate that our capital needs over the next twelve-month period to be $500,000, which can be funded from the profits of the combined Xing, Búcha operations. If our own combined financial resources and current cash-flows from operations are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. Any sale of additional equity securities will result in dilution to our stockholders. The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.

 

During the nine months ended September 30, 2016, the Company borrowed $200,000 in the form of a convertible promissory note, which included warrants, from an unaffiliated third party. During the nine months ended September 30, 2016, the convertible promissory note was converted into 30,000 shares of Series B Preferred Stock. During the nine months ended September 30, 2016, we entered into a $4,500,000 promissory note issued in connection with our Xing acquisition, and we also entered into a promissory note in an amount of $60,000 owed to Chuck Santry, a former member of management, which was received for working capital purposes. The promissory note related to our Xing acquisition accrues interest at a rate of 1.00% per annum, which shall begin to accrue on January 1, 2017. Interest shall be due and payable in arrears on the first day of each month beginning on February 1, 2017 through the maturity date. The maturity date of the promissory note is June 30, 2017. The $60,000 promissory note bears interest at 10% per annum and is due and payable beginning June 30, 2015 maturing on March 31, 2020. Payments of interest are required quarterly. Should the Company be successful in raising $2,000,000 or more in funding the entire balance of the note will be due immediately.

 

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Working Capital

 

   September 30, 2016   December 31, 2015 
Current assets  $10,510,873   $525,959 
Less: current liabilities   10,926,842    571,097 
Working capital (deficiency)  $(415,969)  $(45,138)

 

Current assets are primarily comprised of accounts receivable and inventories, which accounts for 95.6% and 86.7% of our current assets as of September 30, 2016 and December 31, 2015, respectively.

 

Current liabilities are comprised of accounts payable and accrued expenses, factoring payables and, as of September 30, 2016, a current portion ($4,500,000) of a note payable, which is due on June 30, 2017.

 

Increases in our reported assets and liabilities are attributable to our September 30, 2016 acquisition of Xing's net assets for $19,995,000. The purchase price was allocated to the net assets acquired as follows:

 

Accounts receivable  $5,627,669 
Inventories   4,847,417 
Prepaid expenses and other current assets   492,972 
Property and equipment, net   7,418,789 
Other intangible assets acquired   - 
Goodwill   9,135,027 
Assumption of accounts payable, accrued expenses, other current liabilities and mortgage note payable   (7,526,874)
Purchase price  $19,995,000 

 

The above allocation is preliminary and is subject to change. Because the acquisition was completed on June 30, 2016, the Company has begun to assess the fair value of the various net assets acquired but has not yet completed this assessment. The Company is also in the process of identifying other intangible assets, such as customer relationships and recipes that may need to be recognized apart from goodwill. Once identified, these other intangible assets, if any, will be recorded at their fair values. The Company is working to finalize the allocations as quickly as possible, and anticipates that the allocation will not be final for approximately 6 months. Any adjustments necessary may be material to the consolidated balance sheet and the amount of goodwill recognized. Any resulting adjustments would have no impact to the September 30, 2016 reported operating results or cash flows.

 

Cash Flows

 

    Nine months
ended
September 30, 2016
    Six months
ended
September 30, 2015
    Three months
ended
March 31, 2015
 
    Successor     Successor     Predecessor  
Net cash (used in) provided by operating activities   $ 989,602     $ (384,038 )   $ 24,330  
Net cash used in investing activities     (9,260,699 )     (424,327 )     (11,688 )
Net cash provided by (used in) financing activities     8,495,025       408,621       (70,874 )
Net change in cash   $ 223,928     $ (399,744 )   $ (58,232 )

 

Operating Activities

 

Net cash provided by in operating activities for the nine months ended September 30, 2016 (Successor) was $989,602. Net cash used in operating activities for the six months ended September 30, 2015 (Successor) was ($384,038). Net cash provided by operating activities for the three months ended March 31, 2015 (Predecessor) was $24,330. Our cash flows from operating activities improved as a result of increased collection efforts on previously outstanding customer balances and tighter inventory management which allowed for inventories to turn faster than in prior periods. Net cash used in operating activities for the nine months ended December 31, 2015 (Successor) was ($633,982). Net cash provided by operating activities for the three months ended March 31, 2015 (Predecessor) was $24,330. Net cash used in operating activities for the year ended December 31, 2014 (Predecessor) was ($268,520). The primary drivers for the change was we recorded an gain on the forgiveness of accrued payroll for $500,000 during the nine months ended December 31, 2015 (Successor).

 

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Investing Activities

 

Net cash used in investing activities is primarily driven by our acquisition of Xing on September 30, 2016 (Successor), whereby we paid $8,500,000, and the acquisition of B&R Liquid Adventure on April 1, 2015 (Successor), whereby we paid $400,000. Net cash used in investing activities for the six months ended September 30, 2015 (Successor) was ($424,327). Net cash used in investing activities for the three months ended March 31, 2015 (Predecessor) was ($11,688). Net cash used in investing activities during the nine months ended December 31, 2015 (Successor) and three months ended March 31, 2015 (Predecessor) were ($28,351) and ($11,688). Net cash used in investing activities during the year ended December 31, 2014 (Successor) was ($4,929). The primary cause for the change from period to period was cash proceeds and cash payments on discontinued operations and the acquisition of B&R Liquid Adventure during the nine months ended December 31, 2015 (Successor).

 

Financing Activities

 

For the nine months ended September 30, 2016 (Successor), net cash provided by financing activities of $8,495,025 was due to us borrowing (i) $10,700,000 from a bank to finance the Xing acquisition. The $10.7 million in debt was secured in two separate notes with U.S. Bank; one note for $4.8 million, which is secured by our Denver, Colorado property; and another revolving note of $5.9 million, which is secured by the company’s inventories and receivables. $2,200,000 of the $10,700,000 was used to pay off the balance from the previous mortgagor and the remaining $8.5 million was used to fund the Xing acquisition. There was additional debt of (ii) $200,000 from an unrelated party pursuant to a convertible note payable. For the six months ended September 30, 2015 (Successor), net cash provided by financing activities of $408,621was attributable to net proceeds from factoring of accounts receivable ($115,420), net increases in notes payable ($126,858) and sales of our common stock and preferred stock for cash ($86,200). For the three months ended March 31, 2015 (Predecessor), the net cash used in financing activities of $70,874 was related to payments made on our notes payable. Net cash provided by financing activities during the nine months ended December 31, 2015 (Successor) was $248,054. Net cash used in financing activities during the three months ended March 31, 2015 (Predecessor) was ($70,874). Net cash provided by financing activities during the year ended December 31, 2014 (Successor) was $112,503. The primary cause for the change from period to period was cash proceeds and cash payments on notes payables and net factoring advances during the nine months ended December 31, 2015 (Successor).

 

Future Financing

 

We may require additional funds to implement our growth strategy. Therefore, we may need to raise additional capital to sufficiently support its supply chain and support the distribution of our products in the marketplace. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available to the company when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis should it be required, or generate significant material revenues from operations, we will not be able to meet our other obligations as they become due and we may be forced to scale down or perhaps even cease operations.

 

Off-Balance Sheet Arrangements

 

We have no 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.

 

Effects of Inflation

 

We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.

 

Critical Accounting Policies and Estimates

 

Our significant accounting policies are more fully described in the notes to our consolidated financial statements included herein for the quarter ended September 30, 2016.

 

Newly Issued Accounting Pronouncements

 

We do not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on our financial statements.

 

Inventories and Provision for Excess or Expired Inventory

 

Inventories consist of tea ingredients, packaging and finished goods and are stated at the lower of cost (first-in, first-out basis) or market value. Provisions for excess inventory are included in cost of goods sold and have historically been immaterial but adequate to provide for losses on its raw materials. There was no reserve for obsolescence as of December 31, 2015 (Successor) and December 31, 2014 (Predecessor).

 

Long-lived Assets

 

Our long-lived assets consisted of property and equipment and customer relationships and are reviewed for impairment in accordance with the guidance of the FASB Topic ASC 360, Property, Plant, and Equipment. We test for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Through December 31, 2015, we had not experienced impairment losses on its long-lived assets as management determined that there were no indicators that a carrying amount of the asset may not be recoverable.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivables. We place our cash with high credit quality financial institutions. At times such amounts may exceed federally insured limits. Receivables arising from sales of our products are not collateralized. As of December 31, 2015, three customers represented approximately 93.7% (59.9%, 22.9% and 10.9%) of accounts receivable. For the nine months ended September 30, 2016 (Successor), three customers represented approximately 27.5% (14.5%, 7.5% and 5.5%) of revenue. For the six months ended September 30, 2015 (Successor), three customers represented approximately 31.3% (18.8%, 7.9% and 4.5%) of revenue. For the three months ended March 31, 2015 (Predecessor), three customers represented approximately 85.6% (30.2%, 29.4% and 26.0%) of revenue. As of December 31, 2014 (Predecessor), four customers represented approximately 75.1% (25.4%, 24.0%, 13.5% and 12.1%) of accounts receivable. For the year ended December 31, 2014 (Predecessor), four customers represented approximately 84.5% (28.1%, 18.9%, 18.9% and 18.6%) of revenue.

 

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Accounts Receivable Factoring Arrangement with Recourse

 

In April 2015, we entered into a factoring agreement to sell, with recourse, certain receivables to an unrelated third-party financial institution. Under the terms of the factoring agreement, we receive an advance of 80% of qualified receivables and maximum amount of outstanding advances at any one time will not exceed $500,000. For the nine months ended September 30, 2016 (Successor), we received net advances from the factoring of accounts receivable of $110,663 and recognized factoring interest and fees of $34,069. We pay factoring fees associated with the sale of receivables at the rate of 0.67% of the gross face value of the receivable for every ten-day period or fraction thereof from the date of the advance until the receivable is paid in full.

 

Goodwill and Intangible Assets

 

Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. The goodwill impairment test is applied by performing a qualitative assessment before calculating the fair value of the reporting unit. If, on the basis of qualitative factors, it is considered not more likely than not that the fair value of the reporting unit is less than the carrying amount, further testing of goodwill for impairment would not be required. Otherwise, goodwill impairment is tested using a two-step approach.

 

Intangible assets are recorded at acquisition cost less accumulated amortization and impairment. Definite lived intangible assets are amortized over their estimated useful life using the straight-line method, which is determined by identifying the period over which the cash flows from the asset are expected to be generated.

 

Share-Based Compensation

 

We account for stock-based compensation to employees in accordance with FASB ASC 718, Compensation—Stock Compensation. Stock-based compensation to employees is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite employee service period. We account for stock-based compensation to other than employees in accordance with FASB ASC 505-50. Equity instruments issued to other than employees are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments and is recognized as expense over the service period. We estimate the fair value of stock-based payments using the Black-Scholes option-pricing model for common stock options and warrants and the latest fair market price of the Company’s common stock for common share issuances.

 

Acquisitions

 

We entered into an Asset Purchase Agreement on May 20, 2016, which closed on June 30, 2016, whereby we acquired substantially all of the operating assets of New Age Beverages, LLC, New Age Properties, LLC, Aspen Pure, LLC and Xing Beverage, LLC (collectively, “Xing”), which are companies engaged in the manufacture and sale of various teas and beverages. The transaction was disclosed in a Form 8-K filed on May 23, 2016, and an amended Form 8-K filed on June 30, 2016. Upon the closing of the acquisition, we received substantially all of the operating assets of Xing, consisting of inventory, fixed assets and intellectual property in exchange for an aggregate purchase price of approximately $19,995,000, consisting of $6,995,000 worth of our common stock, consisting of 4,353,915 shares of common stock, $8,500,000 in cash, and a secured promissory note in an amount of $4,500,000. The promissory note shall accrue interest of 1% per annum, beginning after six months from the Closing Date, and shall be secured by a second lien on our assets. The shares of common stock issued pursuant to the acquisition are subject to an additional leak out provision, which states that upon the date that is six months after Closing Date, the holders of the shares may only sell up to fifteen percent of the shares held by such shareholder each calendar quarter for an additional twelve month period, meaning that the leak out provision will expire 18 months from the Closing of the acquisition.

 

On April 1, 2015 we entered into an Asset Purchase Agreement whereby we acquired substantially all of the operating assets of B&R Liquid Adventure, LLC a California Limited Liability Company. Upon the closing of the acquisition, we received substantially all of the operating assets of B&R, consisting of inventory, fixed assets and intellectual property in exchange for 1,479,290 shares of common stock valued at $500,000, a cash payment of $260,000, and a secured promissory note in an amount of $140,000. The shares of common stock issued pursuant to the acquisition are restricted under Rule 144, and are also subject to an additional leak out provision, which states that upon the date that is six months after Closing, the holders of the shares may only sell up to fifteen percent of the shares held by such shareholder each calendar quarter for an additional twelve month period, meaning that the leak out provision will expire 18 months from the Closing of the acquisition.

 

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Capital Expenditures

 

Other Capital Expenditures

 

We expect to incur research and development costs, as well as marketing expenses in connection with the expansion of our business and the development of our products.

 

Going Concern

 

The Report of our Independent Registered Public Accounting Firm with respect to our December 31, 2015 consolidated financial statements as provided in our Form 10-K filed on April 7, 2016 includes an explanatory paragraph stating that the recurring losses, an accumulated deficit and a working capital deficit at December 31, 2015 raise substantial doubt about our ability to continue as a going concern.

 

We believe that the actions presently being taken to further implement our business plan and generate revenues provide the opportunity for us to continue as a going concern. While we believe in the viability of our strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to further implement our business plan and generate revenues.

 

The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

Future Contractual Obligations and Commitment

 

We incur contractual obligations and financial commitments in the normal course of our operations and financing activities. Contractual obligations include future cash payments required under existing contracts, such as debt and lease agreements. These obligations may result from both general financing activities and from commercial arrangements that are directly supported by related operating activities.

 

As of September 30, 2016, we have no future contractual obligations or commitments, other than our distribution agreements and the promissory note related to the Xing acquisition.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2016, we have not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated under which it has:

 

  a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit;
     
  liquidity or market risk support to such entity for such assets;
     
  an obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument; or
     
  an obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by, and material to us, where such entity provides financing, liquidity, market risk or credit risk support to or engages in leasing, hedging, or research and development services with us.

 

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BUSINESS

Overview

 

We are a healthy functional beverage company engaged in the development, marketing, sales and distribution of a portfolio of Ready-to-Drink (“RTD”) better-for-you beverages including competitive entrants currently in the kombucha, RTD tea, premium bottled water, and energy drinks segments. We differentiate our brands through functional characteristics and ingredients and offer all natural and organic products, with no high-fructose corn syrup (“HFCS”), no-Genetically Modified Organisms (“GMOs”), no preservatives, and only all natural flavors, fruits, and ingredients. We aspire to be a market leader in the development of healthy beverage alternatives. Our target market is currently health conscious consumers, who are individuals who are becoming more interested and better educated on what is included in their diets, causing them to shift away from options perceived as less healthy such as soda, and towards alternative beverages such as tea.

 

Corporate History

 

New Age Beverages Corporation was formed under the laws of the State of Washington on April 26, 2010, under the name American Brewing Company, Inc. As part of a recapitalization and amendment to our articles of incorporation on September 25, 2013, we also converted its corporate entity from an “S” Corporation to a “C” Corporation.

 

On April 1, 2015, we acquired the Assets of B&R Liquid Adventure, which included the brand, Búcha® Live Kombucha. Prior to acquiring the Búcha Live Kombucha® brand and business, we were a craft brewery operation. On October 1, 2015, American Brewing agreed to sell their brewery, brewery assets and its related liabilities to focus exclusively on the healthy functional beverage category and the Búcha® brand. The assets sold consisted of accounts receivable, inventories, prepaid assets and property and equipment. We recognized the sale of our brewery and micro-brewing operations as a discontinued operation beginning in the third quarter of 2015, and ultimately concluded the transaction in May 2016. In May 2016 we changed our name to Búcha, Inc. On June 30, 2016, we acquired the combined assets of New Age Beverages, LLC, Aspen Pure, LLC, New Age Properties, and Xing Beverage, LLC, relocated its operational headquarters to Denver, Colorado, and changed our name to New Age Beverages Corporation.

 

We have two wholly-owned subsidiaries, NABC, Inc., and NABC Properties, LLC.

 

Principal products

 

Our core business is to market, sell, and distribute our current brands including XingTea®, XingEnergy®, Aspen Pure®, and Bucha® Live Kombucha brands, and to develop new healthy functional beverage products. We compete in the healthy functional beverage segment, which is the growth area of RTD beverages, as consumers gravitate toward better for you beverage choices and away from traditionally large beverage categories including juices and carbonated soft drinks.

 

XingTea®

 

XingTea® is an all-natural, non-GMO, non-HFCS, RTD tea.

 

XingTea® is made with green teas, softened with black teas, and further differentiated with unique all-natural fruit flavors, with no preservatives, GMOs or HFCS. Sweetened with honey and only pure cane sugar, XingTea® comes in 14 natural sweetened and unsweetened flavors in a range of packages from 23.5 oz cans to 16 oz Pet multipacks and gallon jugs, and is produced in New Age’s network of six manufacturers across the United States.

 

XingTea® is sold in 46 states and 10 countries across multiple channels of distribution from traditional grocery to health food and specialty outlets to hypermarkets to club stores, to gas and convenience outlets. XingTea® contains more than 10 times the actual amount of tea than other competitors’ products and less than one half the calories. XingTea® competes in the RTD Tea category that according to Grand View Research, was USD 71.43 billion in 2015. According to Euromonitor International, the global non-alcoholic beverage industry in 2013 was $840 Billion, with RTD Tea consisting of 6.1%, or $50 Billion. According to the World Research Report, the RTD Tea Market has been averaging a 10.9% compound annual growth rate since 2012, and is expected to reach a combined size of $125 Billion in 2017. According to VDMA and Euromonitor, the 2016 RTD Tea Market was $50 million, with a compound annual growth rate of 9.6% from 2012 to 2016.

 

XingEnergy®

 

XingEnergy® is an all-natural, non-GMO, non-HFCS, vitamin-enriched, better-for-you Energy Drink, made with all natural fruit flavors and contains the full recommended daily allowance of B-Complex vitamins.

 

XingEnergy® comes in four flavors including Tangerine Dream, Grape Attack, Mad Melon, and Grapefruit Go packaged in 16 oz cans, sold individually, expanding now to additional channels. XingEnergy® competes in the Energy Drinks category, and according to Investopedia, the global Energy Drink Market size was $49.9 Billion in 2014. 

  

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Aspen Pure®

 

Aspen Pure® is a naturally PH-balanced, artesian-well sourced water from the Colorado Rocky Mountains.

 

Aspen Pure® has no added minerals or electrolytes, and comes out of the ground at a natural PH-balanced level of up to 7.0. Aspen Pure® is then purified and bottled at the source in New Age’s own manufacturing facilities. Aspen Pure competes in the Premium Bottled Water Category. According to Beverage Marketing Corporation, global bottled water sales reached 87 Billion Gallons in 2015 and experienced a compound annual growth rate 6.9% between 2010 and 2015. According to Transparency International the Market size for bottled water was $169.9 Billion in 2015.

 

Búcha® Live Kombucha

 

Búcha® Live Kombucha is a certified-organic, all-natural, non-GMO, non-HFCS, fermented Kombucha tea with more than two billion probiotic organisms in every serving.

 

Búcha® is produced with a unique and proprietary manufacturing process that eliminates the common vinegary aftertaste associated with many other Kombuchas and provides the brand with an industry leading nine-month shelf life as compared to the typical 90-day shelf life of our competitors’ products. The production process also leads to consistency and stability with no risk of secondary fermentation, secondary alcohol production, incremental sugar production or over-carbonation.

 

Búcha® is made from black teas, proprietary kombucha culture and probiotics, unique yeast strains and cultures, and all natural organic fruits and flavors. Búcha® Live Kombucha comes in seven flavors including Raspberry Pomegranate, Blood Orange, Guava Mango, Grapefruit Sage, Elderflower Green Tea, Yuzu Lemon, and Tropical Honey Blossom Ginger packaged in 16 oz glass bottles. The brand is sold in traditional grocery and health food and specialty outlets, and is beginning to expand distribution from California across the United States in mainstream retail and down the street outlets with the support of major DSD partners. Búcha® competes in the Kombucha Category, that according to Grand View Research reached $700 million in 2015 from $49 million in 2011, a compound annual growth rate of 69.3%.

 

In October of 2016, we entered into a management agreement, pursuant to which we took over the Sales, Marketing and Distribution of the Marley Beverage Company. The management agreement enabled the Company to enter into the RTD Coffee segment and Relaxation Beverages segment with the brands Marley One Drop and Marley Mellow Mood. While both companies continue to be separate entities both operationally and financially, the addition to the portfolio enables us to increase our relevance with key retailer and distributor partners with a broader portfolio of offerings, and enables the Marley Beverage Company to leverage our infrastructure, sales force and scale.

 

Competitive Strengths

 

We differentiate our brands primarily through functional points of difference between our products and those of our competitors, including the characteristics of being organic and all natural, containing no GMO and no preservatives, being sweetened with only honey or pure cane sugar, and containing fewer calories, and other functional benefits than our competitors’ products. In addition, we have begun to build the emotional benefit platforms behind each of our brands.

 

Direct Store Delivery Distribution Network

 

We have our own DSD distribution group in Colorado and a network of other DSD partners in major geographies throughout the United States. Our Colorado DSD group includes 24 truck routes, with a 20 person sales team, and a 20 person merchandising team, covering more than 4,500 outlets for more than 60 brands and more than 600 sku’s. The DSD arm of our business is a test bed for new products before national rollout, provides an early warning system for any new emerging competitive brands or beverage segments, and gives the group near captive control of the shelf space across the 4,500 outlets the group services.

 

Beverage distributors can distribute their products directly through customer warehouses, but distribution via DSD is preferred by customers, as it substantially reduces labor and other overhead costs when distributors manage the freight, stocking and merchandising of their products directly to the retailers’ shelves. Although it is more expensive for the brand owner, the benefits of captive shelf space, merchandising at the point of sale, and penetration of a significantly greater number of smaller and independent outlets justify the added expense.

 

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Reliance on Third Party Suppliers and Distributors

 

We rely on various suppliers for the raw and packaging materials, production, sale and distribution of our products. Our third party distribution providers are for certain areas of the country that are outside of our owned DSD distribution network. The material terms of these relationships are typically annually negotiated and include pricing, quality standards, delivery times and conditions, purchase orders, and payment terms. Payment terms are typically net 30, meaning that the total invoiced amount is expected to be paid in full within 30 days from when the date on which the products or services are provided. We believe that we have sufficient options for each of our raw and packaging material needs, as well as our third party distribution needs and also have long term relationships with each of our suppliers and distributors, resulting in consistency in quality and supply. We also believe that we have sufficient breadth of retail relationships with distribution in both large and small retailers and independents and across multiple channels (mass, club, pharmacies, convenience, and small and large format retailers) throughout the United States.

 

The contractual arrangements with all third parties, including suppliers, manufacturers, distributors and retailers are typical of the beverage industry with standard terms. We have no long-term obligations with any of the third parties nor do any of them have long-term obligations with us. The third party supplier, manufacturing and distribution agreements were entered into in the normal course of business within the guidelines of industry practices and are not deemed material and definite.

 

The suppliers of our raw materials are as follows:

 

Tea: Virginia Dare, Synergy Flavors, Allen Flavors, TeaWolf, Dohler,
Sugar: Cargill, Captain Drake, Azumex, Peachtree, Marigold
Probiotics: Deerland Enzymes, Nebraska Cultures, Sabinsa, Ganedan
Flavors: Allen Flavors, Beck Flavors, Newport Flavors, California Custom Fruits and Flavors, Blue Pacific Flavors
Colors: Fruitsmart, GNT
Oils: Mountain Rose Herbs, Essential Oil Co,
Yeast: Gusmer Enterprises, Entaris, Scott Laboratories, Beverage Supply Group

 

Significant Customers

 

As of December 31, 2015, three customers represented approximately 93.7% (59.9%, 22.9% and 10.9%) of accounts receivable. For the nine months ended September 30, 2016 (Successor), three customers represented approximately 27.5% (14.5%, 7.5% and 5.5%) of revenue. For the six months ended September 30, 2015 (Successor), three customers represented approximately 31.3% (18.8%, 7.9% and 4.5%) of revenue. For the three months ended March 31, 2015 (Predecessor), three customers represented approximately 85.6% (30.2%, 29.4% and 26.0%) of revenue. As of December 31, 2014 (Predecessor), four customers represented approximately 75.1% (25.4%, 24.0%, 13.5% and 12.1%) of accounts receivable. For the year ended December 31, 2014 (Predecessor), four customers represented approximately 84.5% (28.1%, 18.9%, 18.9% and 18.6%) of revenue.

 

Marketing and Consumer Connection Expertise To Next Generation Consumers

 

We have the marketing capability to facilitate connections with consumers, and to build awareness, drive trial, begin conversion, and develop brand preference amongst consumers, and do so in a cost effective manner. We possess significant internal marketing expertise spanning development of communication and programs across all marketing mediums. To effectively compete against major beverage companies, we focus most of our activities on in-store merchandising, experiential and event marketing, and social and digital marketing activities. Further developing these capabilities to connect with millennials and more informed and health conscious consumers will further differentiate our marketing capabilities to connect with a targeted set of consumers and do so in a cost advantaged manner.

 

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Infrastructure, Organizational Capabilities

 

In addition to having an asset footprint that includes our own warehousing, our own trucks and DSD assets, our own manufacturing, and a network of other long-term manufacturing partners, we have a full scale of resources across every major function with depth in supply chain, production, procurement, shipping, finance, sales, marketing, distribution, and research and development. We define organizational capability strength as having the people, the processes, the systems, the information and the environment/culture to deliver superior, sustainable, and profitable organic growth. We are emplacing initiatives in each of the areas of organizational capabilities to strengthen the metric-driven, performance-oriented organization.

 

Experienced Leadership Team

 

Each member of our leadership team at New Age possesses 15 to 25 years of experience in the beverage industry, spanning all facets of beverage operations. The combination of operating skills from our management team with the experience of successfully leading major multi-billion dollar, multinational beverage companies gives our organization a significant strength relative to most small- and medium-sized beverage companies.

 

Growth Strategies

 

Our primary long-term goal is to become a viable and competitive healthy functional beverage company. We intend to achieve this goal by driving organic growth behind our existing portfolio of healthy functional beverages, in all relevant packages and product formats, across all major retail channels, in all major markets, through an aligned network of retailer and distributor partners.

 

Our key growth strategies include the following:

 

   ● developing a powerful, performance-oriented, and metric-driven organizational culture;
     
   ● developing sales/trade tool kits to empower our sales force network to engage with global customers;
     
   ● developing brand/marketing tool kits for current and new brands and segments;  
     
   ● expanding distribution with current customers, new major customers domestically and internationally;
     
   ● strengthening our supply chain to achieve best in class costs, on-time/as promised logistics and superior customer service;
     
   ● improving margins with rearchitected cost of goods sold, improved efficiency, and improved net revenue per case with new products;
     
   ● upgrading infrastructure, systems and processes with enterprise resource planning systems, improved financial reporting, operating expense control, and strengthened key metrics and accounting and control procedures; and
     
   ● strengthening our financial foundation via accessing the capital markets, solidifying long-term banking partners and facilities, and pursuing transformative organic and external growth.

 

Recent Developments

 

On January 10, 2017, our wholly owned subsidiary, NABC Properties, LLC, entered into a Purchase and Sale Agreement with an unaffiliated third party. Pursuant to the agreement, NABC Properties, LLC sold the property located at 1700 E 68th Avenue, Denver, CO 80229 for a purchase price of $8,900,000. $100,000 of the purchase price was paid upon execution of the agreement, with the balance of $8,800,000 to be paid on or before March 6, 2017. The agreement contains a lease back provision, whereby NABC Properties, LLC shall lease the property for an initial term of ten years, with an option to extend for two successive five year periods. The lease cost is $52,000 per month for the initial year, with two percent annual increases.

 

Sales and Marketing

 

We currently have an in-house sales and merchandising team consisting of approximately 50 individuals throughout the United States, whose compensation is highly variable and highly performance-based. Each sales person has individual targets for increasing “base” volume through distribution expansion, and “incremental” volume through promotions and other in-store merchandising and display activity. As distribution to new major customers, new major channels, or new major markets increases, we will expand the sales and marketing team on a variable basis.

 

We market our products using a range of marketing mediums including in-store merchandising and promotions, experiential marketing, events, and sponsorships, digital marketing and social media, direct marketing, and traditional media including print, radio, outdoor, and TV.

 

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Distribution

 

Our products are currently distributed in in 10 countries internationally, and in 46 states domestically through a hybrid of four routes to market including our own direct store distribution (“DSD”) system that reaches more than 4,500 outlets, and to more than 10,000 other outlets throughout the United States directly through customer’s warehouses, through our network of DSD partners, and through our network of brokers and natural product distributors. Our products are sold through multiple channels including major grocery retail, natural food retail, specialty outlets, hypermarkets, club stores, pharmacies, convenience stores and gas stations.

 

Our sales strategy is to distribute our products worldwide through a series of distributors to retail consumers. We are relying on distribution relationships to grow and maintain revenues. Presently, we have several distribution agreements in place for our products in the United States, as well as internationally.

 

We do not obtain commitments from our distributors to purchase or sell a minimum amount of our products or to purchase or sell such products at a minimum price. Because our sales may be concentrated with a few customers, our results of operations may be materially adversely affected if one of these customers significantly reduces the volume of its purchases or demands a reduction in price, which may occur at any time due to the absence of such purchase commitments.

 

Research and Development Activities

 

Our research and development efforts are focused on two primary paths. The first is to continually review our existing formulas and production processes and structure to evaluate opportunities for cost of goods sold improvements, without degrading the quality or fundamentally changing the consumer appeal taste profile of our existing products. The second major research and development effort is in the development of new flavors or adding in new trending functional characteristics to our existing products, and to develop new beverage types based on consumer insights and trends. The Company’s mission to only provide healthy functional beverages governs our development efforts.

 

Seasonality

 

We experience some seasonality whereby the peak summer months show a higher level of sales and consumption. However, the structure of our business and range of products in our portfolio mitigate any major fluctuations. Our revenue during the peak summer months have historically been approximately 20% greater than the peak winter months, and as our portfolio and geographic penetration have further expanded, the level of seasonal peaks has diminished.

 

Competition

 

The beverage industry, specifically the healthy beverage industry, is highly competitive. We face intense competition from very large, international corporations, as well as from local and national companies. In addition, we face competition from well-known companies that have large market share.

 

The intensity of competition in the future is expected to increase and no assurance can be provided that we can sustain our market position or expand our business.

 

Many of our current and potential competitors are well established and have longer operating histories, significantly greater financial and operational resources, and name recognition than we have. However, we believe that with our diverse product line, consisting of kombucha tea, green tea, water and energy beverages, it will give us the ability to obtain a large market share, and continue to generate sales and compete in the industry.

 

Patents and Trademarks

 

We hold United States trademarks, Serial Numbers 86694956 and 85087186 for Bucha®. We also hold United States trademarks, Serial Numbers 85025636 and 76438612 for Aspen Pure®, Serial Number 85347345 for Just Pure Water®, Serial Number 77312629 for XingEnergy®, Serial Number 77050595 for XingTea®, and Serial Number 77312679 for Xing Soda®, all of which were acquired in our acquisition of Xing. Any encroachment upon our proprietary information, including the unauthorized use of our brand name, the use of a similar name by a competing company or a lawsuit initiated either by us or against us for infringement upon proprietary information or improper use of a trademark, may affect our ability to create brand name recognition, cause customer confusion and/or have a detrimental effect on our business due to the cost of defending any potential litigation related to infringement. Litigation or proceedings before the U.S. or International Patent and Trademark Offices may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets and/or to determine the validity and scope of the proprietary rights of others. Any such litigation or adverse proceeding could result in substantial costs and diversion of resources and could seriously harm our business operations and/or results of operations.

 

 43 
 

 

Government and Industry Regulation

 

We are subject to a variety of federal, state and local laws and regulations in the U.S. These laws and regulations apply to many aspects of our business including the manufacture, safety, labeling, transportation, advertising and sale of our products. Violations of these laws or regulations in the manufacture, safety, labeling, transportation and advertising of our products could damage our reputation and/or result in regulatory actions with substantial penalties. For example, changes in recycling and bottle deposit laws or special taxes on our beverages and our ingredients could increase our costs. Regulatory focus on the health, safety and marketing of beverage products is increasing. Certain federal or state regulations or laws affecting the labeling of our products, such as California’s “Prop 65,” which requires warnings on any product with substances that the state lists as potentially causing cancer or birth defects, are or could become applicable to our products. At this time, our products do not require government approval, but as federal or state laws change, the manufacture or quality of our products may become subject to additional regulation.

 

We are also subject to the Securities Act, the Securities and Exchange Act of 1934, and Washington and Colorado Corporation Law. We will also be subject to common business and tax rules and regulations pertaining to the operation of our business, such as the United States Internal Revenue Tax Code and the Washington and Colorado State Tax Codes, as well as international tax codes and shipping tariffs. We will also be subject to proprietary regulations such as United States Trademark and Patent Law as it applies to the intellectual property of third parties. We believe that the effects of existing or probable governmental regulations will be additional responsibilities of management to ensure that we are in compliance with securities regulations as they apply to our products as well as ensuring that we do not infringe on any proprietary rights of others with respect to our products. We will also need to maintain accurate financial records in order to remain compliant with securities regulations as well as any corporate tax liability we incur.

 

Employees

 

As of the date of this prospectus, we have 130 fulltime employees. Our activities are managed by our officers and directors.

 

Property

 

Our operations, packaging and distribution are currently being conducted out of the offices located at 1700 E. 68th Avenue, Denver, CO 80229. We hold a mortgage on our Colorado property, for which we pay $45,000 per month in principal and interest. We consider the current space to be adequate and will reassess our needs based upon future growth. Our manufacturing facilities are located in Alamosa, Colorado for our Aspen Pure product.

 

 44 
 

 

MANAGEMENT

 

Directors are elected by the stockholders to a term of one year and serve until their successors are elected and qualified. Officers are appointed by the board of directors to a term of one year and serve until their successors are duly appointed and qualified, or until the officer is removed from office.

 

The name, age and position of our officers and directors is set forth below:

 

Name   Age   Position(s)
         
Neil Fallon   50   Executive Chairman
Brent David Willis   55   Chief Executive Officer, Director
Chuck Ence   51   Chief Financial Officer
Reggie Kapteyn   46   Director
David Vautrin   46   Director
Ed Brennan   60   Director
Tim Haas   70   Director
Greg Fea   57   Director

 

Neil Fallon – Executive Chairman

 

Neil Fallon has been a Director of the Company since inception on April 26, 2010, and served as Chief Executive Officer and Chief Financial Officer from inception until March 24, 2016. He was chosen to serve as a director of the company due to the fact that he is the founder of the company and possesses valuable business experience related to acting in a management role. Neil Fallon previously owned his own residential real estate developing company, Neil Fallon Development, where he developed and built over 100 home sites through California and Washington states from May 2002 to July 2015. He specialized in the development of infill properties averaging in the range of 30-50 home sites. Mr. Fallon has a BA in Business Administration with concentrations in Finance and Marketing from Western Washington University.

 

Brent Willis - Chief Executive Officer, Director

 

Brent Willis was appointed as Chief Executive Officer, and as a member of the board of directors on March 24, 2016. Mr. Willis was chosen to serve as a director of the Company due to his extensive executive business experience. During the previous five years, Mr. Willis has been a director or officer, serving as Chairman and Chief Executive Officer of a number of private-equity backed companies including ULearning.com, an online education company from April 2014 until present, Vivitris Life Sciences, Inc., a natural life science products company from December 2015 through present, XFit Brands, Inc. and Throwdown Industries Inc, a private functional fitness and mixed-martial arts company from November 2009 through present, Liberty Ammunition, Inc., a private lead-free ammunition company from December 2009 until April 2013, and Electronic Cigarettes International Group, a public independent e-cigarette company from April 2013 until April 2015. Prior to these companies from 1987 through 2008, Mr. Willis was a C-Level and Senior Executive for Cott Corporation, AB InBev, The Coca-Cola Company, and Kraft Heinz. Mr. Willis obtained a Bachelors of Science in Engineering from the United States Military Academy at West Point in 1982 and obtained a Masters in Business Administration from the University of Chicago in 1991.

 

Chuck Ence – Chief Financial Officer

 

Chuck Ence was appointed as Chief Financial Officer on September 15, 2016. From 2001 through present, Chuck Ence has been the Chief Financial Officer and a minority owner of Xing Beverages, LLC. Mr. Ence obtained a Bachelors of Arts in Business Administration and Accounting from Southern Utah University in 1984, and obtained a Masters in Business Administration in Finance from Arizona State University School of Business in 1985.

 

Reggie Kapteyn – Director

 

Reggie Kapteyn is a published physician at the NIH (National Institutes of Health) and is currently a Board Certified Practicing Physician, a Director of Vivitris Life Sciences, Inc., and a Director of Product Development at HydroCision, Inc. From 2015 through present he has been a Director of Vivitris Life Sciences. From 2014 through present he has been a Director of Product Development at HydroCision, Inc. From 2013 through present he has been a Practicing Physician and Director of Pain Management at OAM in Michigan. From 2009 to 2012 he was a Medical Director at Drake Hospital, a University of Cincinnati Hospital. He is a graduate of Hope College, West Virginia School of Osteopathic Medicine, with residency at Georgetown University and fellowship at the NIH and the University of Wisconsin.

 

David Vautrin – Director

 

David Vautrin is currently the CEO of XFit Brands, Inc. a public company and the former CMO of Cott Corporation. From 2013 to present he has been the CEO of XFIT Brands, Inc. From 2009 to 2012 he was the CEO of Throwdown Industries, Inc. He is a graduate of The State University of New York.

 

Ed Brennan – Director

 

Ed Brennan is the current Owner and CEO of Beak and Skiff Orchards, a private company, and is the former Chairman and CEO of Duty Free Stores, and the former CMO at Macy’s. From 2013 through present he has been the Owner and CEO for Beak and Skiff Orchards. From 1999 through 2012 he was the Chairman and CEO for Duty Free Stores (DFS Hong Kong Ltd.). He is a graduate of Niagara University.

 

Tim Haas – Director

 

Tim Haas is the former CEO of Coca-Cola Foods and The Minute Maid Company, and former Group President Latin America of The Coca-Cola Company. Over the past five years he has not held any formal Board of Directors or other employment positions. He is a graduate of The University of North Dakota.

 

Greg Fea – Director

 

Greg Fea is the former President, CEO and Vice-Chairman of Illy Coffee, and has over twenty plus years of experience of beverage experience in senior leadership roles for E&J Gallo, Cadbury Schweppes, and Danone. From 2015 through present he has been the managing partner of Global Solutions Consulting. From 1998 through 2014 he worked for Illy Caffe, SPA and was President, CEO and Vice Chairman of the firm based in Trieste Italy from 2013 to 2014. He is a graduate of San Diego State University.

 

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Corporate Governance

 

Prior to the closing of this offering, our board of directors will establish an audit committee, compensation committee and nominating and corporate governance committee. Each committee will operate under a charter, to be approved by our board of directors in connection with this offering. Following this offering, copies of each charter will be posted in the Investors section of our website, www.mybucha.com. We expect the functions of our committees, once established, shall be as described below.

 

Audit Committee

 

The functions of the Audit Committee will be to (i) review the qualifications of the independent auditors, our annual and interim financial statements, the independent auditor’s report, significant reporting or operating issues and corporate policies and procedures as they relate to accounting and financial controls; and (ii) to consider and review other matters relating to our financial and accounting affairs. Mr. Vautrin, Dr. Kapteyn and Mr. Fea will serve as members of the Company’s audit committee, with Mr. Vautrin acting as the audit committee chairman and financial expert.

 

Compensation Committee

 

The function of the Compensation Committee will be to discharge the Board’s responsibilities relating to compensation of the Company’s directors and executive officers, to produce an annual report on executive compensation for inclusion in the Company’s Proxy Statement, as necessary, and to oversee and advise the Board on the adoption of policies that govern the Company’s compensation programs including stock incentive and benefit plans. Mr. Vautrin, Mr. Brennan, and Dr. Kapteyn will serve as members of the Company’s compensation committee, with Mr. Fea serving as the compensation committee chairman.

 

Nominating and Governance Committee

 

The function of the Nominating and Governance Committee is to (i) make recommendations to the Board regarding the size of the Board, (ii) make recommendations to the Board regarding criteria for the selection of director nominees, (iii) identify and recommend to the Board for selection as director nominees individuals qualified to become members of the Board, (iv) recommend committee assignments to the Board, (v) recommend to the Board corporate governance principles and practices appropriate to the Company, and (vi) lead the Board in an annual review of its performance. Mr. Fea, Mr. Brennan and Mr. Haas will serve as members of the Company’s governance committee, with Mr. Brenna serving as the governance committee chairman.

 

Director Independence

 

The Company is quoted on the OTC Pink Marketplace, which does not require director independence requirements. However, NASDAQ requires that a majority of the board of directors must be comprised of Independent Directors as defined in Rule 5605(a)(2). For purposes of determining director independence, we have applied the definitions set forth in the NASDAQ guidelines which state, generally, that a director is not considered to be independent if he or she is, or at any time during the past three years was an employee of the Company; or if he or she (or his or her family member) accepted compensation from the Company in excess of $120,000 during any twelve month period within the three years preceding the determination of independence. Our Board has affirmatively determined that Mr. Vautrin, Dr. Kapteyn, Mr. Brennan, Mr. Haas and Mr. Fea are “independent” directors as such term is defined under the NASDAQ rules and the related rules of the SEC.

 

Board Leadership Structure

 

The Board has no set policy with respect to the separation of the offices of Executive Chairman and Chief Executive Officer. Currently, Neil Fallon serves as Executive Chairman and Brent Willis serves as Chief Executive Officer. Our board of directors does not have a lead independent director. Our board of directors has determined that its leadership structure is appropriate and effective for us at this time, given our stage of development.

 

Board of Director’s Role in Risk Oversight

 

The Board is responsible for overseeing our management and operations, including overseeing our risk assessment and risk management functions. We believe that our directors provide effective oversight of risk management functions. On a regular basis we perform a risk review wherein the management team evaluates the risks we expect to face in the upcoming year and over a longer term horizon. From this risk assessment plans are developed to deal with the risks identified. The results of this risk assessment are provided to the Board for their consideration and review. In addition, members of our management periodically present to the Board the strategies, issues and plans for the areas of our business for which they are responsible. While the Board oversees risk management, our management is responsible for day-to-day risk management processes. Additionally, the Board requires that management raise exceptional issues to the Board. We believe this division of responsibilities is the most effective approach for addressing the risks we face and that the Board leadership structure supports this approach.

 

Code of Business Conduct and Ethics

 

We have not adopted a written Code of Business Conduct and Ethics that applies to our directors, officers and employees. The Board and our management group plan to adopt a written Code of Business Conduct and Ethics prior to the closing of this offering.

 

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EXECUTIVE COMPENSATION

 

Summary Compensation Table (2015 and 2014)

 

The following table sets forth information concerning the compensation of our named executive officers during 2015 and 2014.

 

Name and

Principal Position

  Year  

Salary

($)

  

Totals

($)

 
(a)  (b)   (c)   (j) 
             
Brent Willis, CEO   2015   $0   $0 
    2014   $0   $0 
Neil Fallon, former CEO   2015   $100,000   $100,000 
    2014   $

80,000

   $

80,000

 

 

Employment Agreements

 

Our board of directors signed a board resolution on March 24, 2016, which provides that Brent Willis, the interim Chief Executive Officer as of the date of the resolution, would receive a base salary of $7,500 per month, benefits and expense reimbursement, and a sign-on incentive bonus of 5% of the outstanding shares of the Company as of the date of the resolution.  The 5% of the outstanding shares sign-on bonus was equal to 771,783 shares of common stock valued at $200,663.46, or $0.26 per share based on the market price of the shares on the date of issuance.

 

We executed an employment agreement on June 1, 2016, which provides that Mr. Willis receive a bonus of 5% of the outstanding shares of the Company upon completion of a first acquisition involving more than 25% of our then current market capitalization.  The transaction with Xing met that criteria, and the Company paid the share bonus at the time of closing of the Xing transaction which equaled 1,078,763 shares of common stock valued at $1,736,808.43, or $1.61 per share based on the market price of the shares on the date of issuance.

 

Equity Compensation Plan Information

 

On August 3, 2016, we approved the New Age Beverages Corporation 2016-2017 Long Term Incentive Plan (“the Plan”). The Plan provides for the granting of incentive stock options, options that do not qualify as incentive stock options, restricted stock awards, performance awards, stock appreciation rights, phantom stock awards, stock awards, restricted stock unit awards, or any combination of such awards. The Plan allows for an issuance of a maximum of 10% of the shares of common stock outstanding based on the first day of trading for each fiscal year. The current maximum number of shares that may be issued in 2016 under the Plan is 1,600,000. No single participant may receive more than 25% of the total shares awarded during any single year. The aggregate number of shares with respect to incentive stock options that may be granted under the plan is 1,000,000 shares, and the maximum shares issuable in the form of options is 1,000,000 shares.

 

Outstanding Equity Awards at Fiscal Year End

 

There are no outstanding equity awards for our officers and directors.

 

Compensation of Directors

 

The board of directors has the authority to fix the compensation of directors. No amounts have been paid to, or accrued to, our directors in such capacity as of the date of this prospectus. On January 27, 2017, we executed offer letters with Mr. Vautrin, Dr. Kapteyn, Mr. Brennan, Mr. Haas and Mr. Fea, which provide that Mr. Vautrin, Dr. Kapteyn, Mr. Brennan, Mr. Haas and Mr. Fea will each receive annual compensation of $10,000 in cash and $65,000 worth of restricted common stock in exchange for their services as members of the board of directors.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information with respect to the beneficial ownership of the Company’s voting securities as of February 13, 2017, by each person or group of affiliated persons known to the Company to beneficially own 5% or more of such class of voting securities, each director, each named executive officer, and all of its directors and named executive officers as a group. As of February 13, 2017, there were 22,747,324 shares of common stock outstanding and 250,000 shares of Series A preferred stock outstanding. Concurrent with our NASDAQ listing, we plan to redeem the Series A preferred shares at a price of $0.001 per share. Unless otherwise indicated, the address of each beneficial owner listed below is c/o New Age Beverages Corporation, 1700 E. 68th Avenue, Denver, CO 80229.

 

The following table gives effect to the shares of common stock issuable within 60 days of February 13, 2017, upon the exercise of all options and other rights beneficially owned by the indicated stockholders on that date. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned.

 

   

Number of Shares of

Common Stock

Beneficially

    Percentage of Shares of
Common Stock Beneficially
 

Number of Shares of Preferred Stock

Beneficially

   

Percentage

Of Shares of

Preferred Stock

Beneficially

 

Percentage of

Combined Voting

Power of Common and

Preferred Stock Before

  Percentage of Voting Power of Common Stock After
Beneficial Owner   Owned     Owned   Owned     Owned   Offering(2)(3)   Offering
Five Percent Stockholders:                                        
B&R Liquid Adventure Trust(1)     1,434,912     6.3 %                   5.0%
Nuwa Group, LLC(2)     2,552,311     9.99 %   169,234       68.4 %(2)         8.8%
Scott Lebon(3)     1,579,761     6.9 %                   5.5%
Tom Lebon(4)     1,579,761     6.9 %                   5.5%
Julie Anderson(5)     1,731,236      7.6 %   25,000       10 %(5)     9.6 %(5)   6.0%
Executive Officers and Directors:                                        
Neil Fallon(6)     5,689,639     25.0 %   225,000       90 %(6)     80 %(6)   19.6%
Brent Willis(7)     1,850,546     8.1 %                   6.4%
Chuck Ence     422,702     1.9 %                   1.5%
Reggie Kapteyn         -                   -
David Vautrin                             -
Ed Brennan                             -
Tim Haas                              -
Greg Fea                             -
All Officers and                                        
Directors as a Group (8 persons)     7,962,887     35 %   225,000         (2)(5)(6)      80 %  

 

27.5%

 

(1) The address for B&R Liquid Adventure Trust is 514 John Street, Manhattan Beach, CA 90266. The trustees of the trust are Robert Tiedemann and Richard Corgel.

  

(2) Includes 1,198,439 common shares and 169,234 shares of Series B preferred stock, consisting of 68.4% of the outstanding shares of Series B preferred stock, which are convertible into eight common shares for each Series B preferred share held, with the limitation that the Series B preferred shares may not be converted in an amount that would result in the beneficial ownership of greater than 9.99% of the outstanding shares of the Company. The Series B preferred shares will be converted upon completion of the offering. The members of Nuwa Group, LLC are Kevin Fickle and Devin Bosch. The address for Nuwa Group, LLC is 1415 Oakland Blvd, Suite 219, Walnut Creek, 94596.  

 

(3) The address for Scott Lebon is 4891 Wren Court, Frederick, CO 80504.

 

(4) The address for Tom Lebon is 6865 West Coco Pl, Littleton, CO 80128.

 

(5) Includes 1,731,236 common shares and 25,000 Series A preferred shares, which carry voting rights 500 shares of common stock for every one share of Series A preferred stock. Including the common and Series A preferred shares, Julie Anderson possesses the combined voting power of 14,231,236 shares of common stock, which is equal to 9.6% of the combined voting power of the common and Series A preferred stock. Concurrent with our NASDAQ listing, we plan to redeem the Series A preferred shares held by Julie Anderson. The Series A preferred shares will be redeemed by us at $0.001 per share. The address for Ms. Anderson is 6726 37th St. Ct. West, University Place, WA 98466.

 

(6) Includes 5,689,639 common shares and 225,000 Series A preferred shares, which carry voting rights of 500 shares of common stock for every one share of Series A preferred stock. Including the common and Series A preferred shares (as converted), Neil Fallon possesses the combined voting power of 118,189,639 shares of common stock, which is equal to 80% of the combined voting power of the common and Series A preferred stock. Concurrent with our NASDAQ listing, we plan to redeem the Series A preferred shares held by Mr. Fallon. The Series A preferred shares will be redeemed by us at $0.001 per share.

 

(7) Includes 771,783 shares of common stock issued pursuant to an Employment Agreement as a sign on bonus, as well 1,078,763 shares issued as a bonus at the time of closing of the Xing transaction.

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Since January 1, 2013, we have been a party to the following transactions in which the amount involved exceeded the lesser of $120,000 or one percent of the average of our total assets at year end for the last three completed fiscal years (or $9,571), and in which any director, executive officer or holder of more than 5% of our voting securities, or affiliates or immediate family members of our directors, executive officers and principal stockholders had or will have a material interest. We believe that all of these transactions were on terms as favorable as could have been obtained from unrelated third parties.

 

On May 15, 2013, the Company entered into a Funding Agreement with NUWA Group, LLC. Pursuant to the agreement, NUWA Group has agreed to provide the capital for certain legal and auditing services to be provided on behalf of the Company, and has also agreed to provide various consulting services. As compensation for the capital and services provided, the Company issued to NUWA Group, LLC, 990,000 common shares and warrants to purchase one million common shares. As of the date of this Prospectus, the warrants have been cancelled and are no longer outstanding or exercisable.

 

In March 2015, the Company borrowed $60,000 from Chuck Santry, a former member of management. The note bears interest at 10% per annum and is due and payable beginning June 30, 2015 maturing on March 31, 2020. Payments of interest are required quarterly. Should the Company be successful in raising $2,000,000 or more in funding the entire balance of the note will be due immediately.

 

On May 27, 2016, we issued to Nuwa Group, LLC 30,000 shares of Series B preferred stock pursuant to a debt conversion agreement whereby $225,872 owed by us to Nuwa Group, LLC was converted into shares of our Series B preferred stock. Nuwa Group, LLC is a beneficial holder of greater than 5% of our outstanding common stock.

 

On June 30, 2016, we issued 1,579,761 shares of common stock to each of Scott Lebon and Tom Lebon pursuant to our acquisition of Xing. The shares were received as part of a tax free transaction, but were valued for purposes of the transaction at $1.6066 per share, or $2,538,044 for each of Scott and Tom Lebon. The transactions resulted in Scott and Tom Lebon becoming holders of greater than 5% of our common stock.

 

On June 30, 2016, we issued 422,702 shares of common stock to Chuck Ence, our Chief Financial Officer, in connection with our acquisition of Xing. The shares were received as part of a tax free transaction, but were valued for purposes of the transaction at $1.6066 per share, or $679,133.

 

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DESCRIPTION OF SECURITIES

 

Common Stock

 

Our authorized capital stock consists of 50,000,000 shares of common stock, par value $0.001 per share. The holders of our common stock (i) have equal ratable rights to dividends from funds legally available therefore, when, as and if declared by its board of directors; (ii) are entitled to share in all of its assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of its affairs; (iii) do not have preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights; and (iv) are entitled to one non-cumulative vote per share on all matters on which stockholders may vote. As of the date of this prospectus, there are 22,747,324 shares of our common stock issued and outstanding.

 

Preferred Stock

 

The Amendment to our Articles of Incorporation, dated June 25, 2013, authorizes 1,000,000 shares of preferred stock, par value $0.001, of which 250,000 are classified as Series A preferred stock, and are issued and outstanding as of the date of this prospectus, and 300,000 shares are classified as Series B preferred stock, of which 247,307 shares are issued and outstanding as of the date of this prospectus. The Board may issue additional shares of preferred stock in one or more series and fix the rights, preferences and privileges thereof, including voting rights, terms of redemption, redemption prices, liquidation preferences, number of shares constituting any series or the designation of such series, without further vote or action by the stockholders. All outstanding shares of Series A preferred stock and Series B preferred stock are fully paid and non-assessable.

 

Concurrent with our NASDAQ listing, we plan to redeem the Series A preferred shares held by Neil Fallon and Julie Anderson. The shares will be redeemed by us at a price of $0.001 per share. Once the shares have been redeemed by us, we plan to cancel the designation of the Series A preferred shares, which will result in the 250,000 shares currently designated as Series A preferred shares being returned to our pool of 450,000 shares of authorized preferred stock without designation. Upon the closing of the offering, the 247,307 outstanding Series B preferred shares will be converted into 1,978,456 shares of common stock.

 

Series A Preferred Stock

 

Voting Rights. The record holders of the Series A Preferred Shares shall have the right to vote on any matter with holders of common stock voting together as one class. Each share of Series A preferred stock shall have 500 votes for any election or other vote placed before the shareholders of the Corporation, regardless if the vote is taken with or without a shareholders’ meeting.

 

The Record Holders of the Series A Preferred Shares shall be entitled to the same notice of any Regular or Special Meeting of the Shareholders as may or shall be given to holders of any other series of preferred shares and the holders of common shares entitled to vote at such meetings. No corporate actions requiring majority shareholder approval or consent may be submitted to a vote of preferred and common shareholders which in any way precludes the Series A preferred stock from exercising its voting or consent rights as though it is or was a common shareholder.

 

Conversion Rights. None.

 

Dividend Rights. The Series A preferred stock is eligible for dividends at the discretion of the board of directors with the requirement that any dividends distributed to the holders of the Series A preferred stock are distributed in an equivalent amount to the holders of common stock.

 

Liquidation: If we shall commence a voluntary case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator of us or of any substantial part of our property, or make an assignment for the benefit of our creditors, or admit in writing our inability to pay our debts generally as they become due, or if a decree or order for relief in respect of us shall be entered by a court having jurisdiction in the premises in an involuntary case under the U.S. Federal bankruptcy laws, or if we shall otherwise liquidate, dissolve or wind up, no distribution shall be made to the holders of any shares of capital stock of the Company (other than Senior Securities and pari passu securities) upon liquidation, dissolution or winding up unless prior thereto, the Holders of shares of Series A preferred stock shall have received the Liquidation Preference with respect to each share. If, upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the Holders of the Series A preferred stock and Holders of pari passu securities shall be insufficient to permit the payment to such holders of the preferential amounts payable thereon, then the entire assets and funds legally available for distribution to the Series A preferred stock and the pari passu securities shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference payable on all such shares. The purchase or redemption by us of stock of any class, in any manner permitted by law, shall not, for the purposes hereof, be regarded as a liquidation, dissolution or winding up of the Company. Neither the consolidation nor merger of the Company with or into any other entity nor the sale or transfer by us of substantially all of our assets shall, for the purposes hereof, be deemed to be a liquidation, dissolution or winding up of the Company. The liquidation preference with respect to a share of Series A preferred stock means an amount equal to the stated value thereof. The liquidation preference with respect to any pari passu securities shall be as set forth in the Certificate of Designation filed in respect thereof.

 

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Redemption Provisions. None.

 

Series B Preferred Stock

 

The Series B preferred shares do not have voting rights, redemption rights, liquidation preferences or dividend rights. However, each of the Series B preferred shares is convertible into eight shares of common stock, at the option of the holders, with the limitation that the Series B preferred shares cannot be converted in an amount that would result in the beneficial ownership of greater than 9.99% of our outstanding common shares.

 

Representatives’ Warrants

 

We have agreed to issue to Aegis Capital Corp., the underwriters in this offering, warrants to purchase up to 267,857 shares of our common stock. Please see “Underwriting — Representatives’ Warrants” for a description of the warrants we have agreed to issue to the representatives of the underwriters in this offering, subject to the completion of the offering. We expect to enter into a warrant agreement in respect of the Representatives’ Warrants prior to the closing of this offering.

 

Washington Anti-Takeover Law and Bylaws Provisions

 

Our Bylaws do not discuss any of Washington’s anti-takeover provisions; However, Chapter 23B.19 of the Washington Business Corporation Act, with limited exceptions, prohibits a “target corporation” from engaging in specified “significant business transactions” for a period of five years after the share acquisition by an “acquiring person”, unless (a) the significant business transaction or the acquiring person’s purchase of shares was approved by a majority of the members of the target corporation’s board of directors prior to the acquiring person’s share acquisition or (b) the significant business transaction was both approved by the majority of the members of the target corporation’s board and authorized at a shareholder meeting by at least two-thirds of the outstanding voting shares (excluding the acquiring person’s shares or shares over which the acquiring person has voting control) at or subsequent to the acquiring person’s share acquisition. An “acquiring person” is defined as a person or group of persons that beneficially owns 10% or more of the voting securities of the target corporation. “Significant business transactions” include, among other transactions:

 

  ●   mergers, share exchanges or consolidations with, dispositions of assets to, or issuances of stock to or redemptions of stock from, the acquiring person;
     
   ●   termination of 5% or more of the employees of the target corporation employed in Washington over a five-year period as a result of the acquiring person’s acquisition of 10% or more of the shares;
     
   ●   allowing the acquiring person to receive any disproportionate benefit as a shareholder; and
     
   ●   liquidating or dissolving the target corporation.

 

After the five-year period, “significant business transactions” are permitted, as long as they comply with the “fair price” provisions of the statute or are approved by a majority of the outstanding shares other than those of which the acquiring person has beneficial ownership. A corporation may not “opt out” of this statute. This statute could prohibit or delay the accomplishment of mergers or other takeover or change in control attempts with respect to us and, accordingly, may discourage attempts to acquire us.

 

In addition to Washington’s anti-takeover provisions, certain provisions of our Amended Bylaws could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in their best interests or in our best interests. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of our control.

 

Under our Amended Bylaws, vacancies on the board of directors may be filled by the remaining directors, whether constituting a quorum or not.  In addition, our board of directors is authorized to issue, without stockholder approval, preferred stock, the rights of which may be determined at the discretion of the board of directors and could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that our board of directors does not approve.

  

Transfer Agent and Registrar

 

The transfer agent and registrar for our common stock is ClearTrust, LLC, located at 16540 Pointe Village Drive, #206, Lutz, FL 33558.

 

Stock Market Listing

 

Through February 13, 2017, our common stock was quoted on the OTC Pink Marketplace, under the symbol “NBEV.” As of February 14, 2017, our common stock has been approved for listing on NASDAQ under the symbol “NBEV”.

 

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UNDERWRITING

 

Aegis Capital Corp. and Maxim Group LLC are acting as the representatives of the underwriters in connection with the offering. We have entered into an underwriting agreement dated February 13, 2017 with the representatives. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each underwriter named below and each underwriter named below has agreed, severally but not jointly, to purchase from us, at the public offering price less the underwriting discount set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:

 

Underwriters  Number of
Shares
 
Aegis Capital Corp.   

2,571,428

 
Maxim Group LLC   

1,714,286

 
Total   4,285,714 

 

The underwriters are committed to purchase all the shares of common stock offered by us other than those covered by the option to purchase additional shares of common stock described below, if they purchase any shares of common stock. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement, the underwriters’ obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.

 

We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.

 

The underwriters are offering the shares of common stock, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

 

Over-allotment Option

 

We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase a maximum of 642,857 additional shares of common stock (15% of the shares sold in this offering) from us to cover over-allotments, if any. If the underwriters exercise all or part of this option, they will purchase shares of common stock covered by the option at the public offering price per share that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total price to the public will be $2,250,000 and the total net proceeds, before expenses, to us will be $2,092,500.

 

Discount

 

The following table shows the public offering price, underwriting discount, non-allowable expense allowance and proceeds before expense to us. The information assumes either no exercise or full exercise by the underwriters of the over-allotment option.

 

        Total 
   Per Share    Without Over-Allotment Option