S-1 1 forms-1.htm

 

As filed with the Securities and Exchange Commission on November 22, 2017

Registration No. 333-_________ 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

LONG ISLAND ICED TEA CORP.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware   2080   47-2624098

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

12-1 Dubon Court

Farmingdale, NY 11735

(855) 542-2832

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

Philip Thomas

Chief Executive Officer

Long Island Iced Tea Corp.

12-1 Dubon Court

Farmingdale, NY 11735

(855) 542-2832

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

Copies of communications, including communications sent to agent for service, should be sent to:

 

David Alan Miller, Esq.

Jeffrey M. Gallant, Esq.

Graubard Miller

The Chrysler Building

405 Lexington Avenue

New York, New York 10174

Telephone: (212) 818-8800

Fax: (212) 818-8881

M. Ali Panjwani, Esq.

Pryor Cashman LLP

7 Times Square

New York, New York 10036

Telephone: (212) 421-4100

Fax: (212) 326-0806

 

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [  ]

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]
(Do not check if a smaller reporting company) Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [X]

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered(2)

  Proposed Maximum Aggregate Offering Price(1)   Amount of Registration Fee 

Common stock, par value $0.0001 per share

   (3)   (3)

Class A Warrants to purchase Common Stock

   (3)   (3)
Common Stock underlying the Class A Warrant   (3)   (3)
Underwriter’s Warrant to purchase Common Stock   (3)   (3)
Common Stock underlying Underwriter’s Warrant to purchase Common Stock   (3)   (3)
Total  $10,000,000   $1,245.00 

 

 

(1)

This amount represents the proposed maximum offering price of the securities registered hereunder that may be sold by the registrant. Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).

(2)

Pursuant to Rule 416 under the Securities Act, the shares of common stock registered hereby also include an indeterminate number of additional shares of common stock as may from time to time become issuable by reason of stock splits, stock dividends, recapitalizations or other similar transactions.

(3)

Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(o) of the Securities Act.

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the commission, acting pursuant to said section 8(a), may determine.

 

 

 

 

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED NOVEMBER 22, 2017

 

PRELIMINARY PROSPECTUS

 

[●] Shares of Common Stock and
[●] [Class A] Warrants to Purchase [●]Shares of Common Stock

 

 

Long Island Iced Tea Corp.

 

We are offering [●] of our shares of common stock and our [Class A] warrants to purchase [●] shares of our common stock. One share of common stock is being sold together with one [Class A] warrant, with each [Class A] warrant being immediately exercisable for one share of our common stock at an exercise price of $     per share (or [●] % of the price of each share of common stock sold in this offering) and expiring [5] years after the issuance date.

 

Our shares of common stock are listed on the Nasdaq Capital Market under the symbol “LTEA”. On [●], 2017, the last reported sale price of our shares of common stock was $[●] per share. We have applied to list the [Class A] warrants offered hereby on the Nasdaq Capital Market under the symbol “LTEAW.”

 

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 8 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.

 

    

Per Share of Common

Stock and Warrant

    Total 
Public offering price  $   $ 
Underwriting discount and commissions(1)  $   $ 
Proceeds to the Company, before expenses  $   $ 

 

 

(1) We have agreed to issue a warrant, or the Representative’s Warrant, to the representative of the underwriters, or the Representative. We have additionally agreed to reimburse the underwriters for expenses incurred by them in an amount not to exceed $90,000. We refer you to “Underwriting” beginning on page 64 of this prospectus for additional information regarding total compensation and other items of value payable to the underwriters.

 

We have granted the underwriters an option for a period of up to 45 days to purchase up to [●] additional shares of common stock and/or [●] additional [Class A] warrants.

 

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.

 

The underwriters expect to deliver the shares of common stock and [Class A] warrants to purchasers in the offering on or about          , 2017.

 

Maxim Group LLC

 

The date of this prospectus is          , 2017.

 

 

 

 

TABLE OF CONTENTS

 

ABOUT THIS PROSPECTUS ii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS ii
PROSPECTUS SUMMARY 1
THE OFFERING 6
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA 7
RISK FACTORS 8
USE OF PROCEEDS 17
DIVIDEND POLICY 18
CAPITALIZATION 20
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA 22
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 24
BUSINESS 36
MANAGEMENT 44
EXECUTIVE COMPENSATION 50
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 56
DESCRIPTION OF CAPITAL STOCK AND WARRANTS 59
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 63
UNDERWRITING 64
LEGAL MATTERS 68
EXPERTS 68
WHERE YOU CAN FIND MORE INFORMATION 68
INDEX TO FINANCIAL STATEMENTS 69

 

i

 

 

ABOUT THIS PROSPECTUS

 

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with different information or to make representations other than those contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer is not permitted.

 

We obtained certain statistical data, market data and other industry data and forecasts used or incorporated by reference into this prospectus from publicly available information. While we believe that the statistical data, industry data, forecasts and market research are reliable, we have not independently verified the data, and we do not make any representation as to the accuracy of the information.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains certain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future and other statements that are other than statements of historical fact. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

 

The forward-looking statements in this prospectus are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections. As a result, you are cautioned not to rely on any forward-looking statements.

 

In addition to these important factors and matters discussed elsewhere herein, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include among other things:

 

  We operate in highly competitive markets.
     
  We may not effectively respond to changing consumer preferences, trends, health concerns and other factors.
     
  Costs for our raw materials may increase substantially.
     
 

Fluctuations in our results of operations from quarter to quarter could have a disproportionate effect on our overall financial condition and results of operations.

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

Our intellectual property rights could be infringed or we could infringe the intellectual property rights of others, and adverse events regarding licensed intellectual property, including termination of distribution rights, could harm our business.

     
 

We have experienced cash losses from operations and our ability to grow and compete in the future will be adversely affected if adequate capital is not available to us.

     
  Our gallon product line has minimal gross margins and may divert sales from our higher margin existing product lines.
     
 

We have a limited operating history.

 

  Further growth in our ‘better-for-you’ brand portfolio may in part come from merger, acquisition, distribution or licensing agreements that require greater management capability to effectively manage and may have greater inherent risk.

 

These factors could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results or developments. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements.

 

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. If one or more forward-looking statements are updated, no inference should be drawn that additional updates will be made with respect to those or other forward-looking statements.

 

ii

 

 

 

PROSPECTUS SUMMARY

 

This summary highlights certain information that appears elsewhere in this prospectus or in documents incorporated by reference herein, and this summary is qualified in its entirety by that more detailed information. This summary may not contain all of the information that may be important to you. We urge you to carefully read this entire prospectus, including our financial statements and the related notes and the information in the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As an investor or prospective investor, you should also review carefully the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in this prospectus.

 

Unless the context otherwise requires, as used in this prospectus, the terms “LIIT,” the “Company” and “we,” “us” and “our” are to Long Island Iced Tea Corp., a Delaware corporation, and its subsidiaries, Long Island Brand Beverages LLC, or “LIBB,” and Cullen Agricultural Holding Corp., or “Cullen.” Unless otherwise specifically stated, the information presented in the prospectus assumes no exercise of the [Class A] warrants or Representative’s Warrant and that the underwriters have not exercised their option to purchase additional shares of common stock and [Class A] warrants.

 

Overview

 

We are a holding company operating through our wholly-owned subsidiary, LIBB. We are engaged in the production and distribution of premium Non-Alcoholic Ready-to-Drink (“NARTD”) beverages. We are currently organized around our flagship tea product under the brand Long Island Iced Tea®. The Long Island Iced Tea name for a cocktail originated in Long Island in the 1970’s, and its national recognition is such that it is ranked as the fourth most popular cocktail in restaurants and bars in the U.S. (Source: Nielsen CGA, On-Premise Consumer Survey, 2016). Our premium NARTD tea is made from a proprietary recipe and with quality components.

 

We sell our products to regional retail chains and to a mix of independent mid-to-large range distributors who in turn sell to retail outlets, such as big chain supermarkets, mass merchants, convenience stores, restaurants and hotels, principally in the New York, New Jersey, Connecticut and Pennsylvania markets, with expanding distribution in Florida, Virginia, Massachusetts, New Hampshire, Rhode Island and parts of the Midwest. As of September 30, 2017, our products are available in 20 states and in the Caribbean, Canada and Latin America.

 

On March 14, 2017, we announced the extension of our brand with the launch of The Original Long Island Brand™ Lemonade. This lemonade is a NARTD functional beverage made from a proprietary recipe with quality components.

 

Since February 2016, we have been engaged in the aloe juice business, under the brand ALO Juice. ALO Juice is a NARTD functional beverage made from juice derived from the aloe plant known as aloe vera. ALO Juice sources its aloe plants from harvests in Thailand. The plants are exported from there to South Korea where they are processed in a unique whole leaf manner to ensure the nutritional and health benefits are maintained from the plant all the way through to the bottling process.

 

Our mission is to provide consumers with “better-for-you” premium beverages offered at an affordable price.

 

We aspire to be a market leader in the development of beverages that are convenient and appealing to consumers. There are two major target markets for our beverages: consumers on the go and health conscious consumers. Consumers on the go are families, employees, students and other consumers who lead a busy lifestyle. With increasingly hectic and demanding schedules, there is a need for products that are accessible and readily available. Health conscious consumers 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 carbonated soft drinks (“CSDs”) towards alternative beverages such as iced tea.

 

Competitive Strengths

 

We believe that a differentiated brand will be a key competitive strength in the NARTD category. Key points of differentiation for Long Island Iced Tea® and Long Island Brand™ Lemonade include:

 

A highly experienced beverage management team, supported by a strong Board of Directors and strategic advisors;

 

1

 

 

 

Ownership of the “Long Island Iced Tea” trademark in the United States in the non-alcoholic beverage segment, which carries immediate brand recognition;
   

A distribution partnership in the New York region with Big Geyser Inc. (“Big Geyser”), the largest independent non-alcoholic beverage distributor in metro New York that has in excess of 25,000 doors;

   
Strong and growing distribution in the Northeast (company’s origin), with expanding distribution in the Midwest and South;
   
Offered at an affordable price;
   
A widely recognized US brand name, reinforced with “Made in America” positioning, highly relevant to the three largest global RTD tea markets – USA, China and Japan;
   
The use of non-GMO ingredients; and
   
A product that meets shifting consumer demands, our flagship brands being corn free, hormone/antibiotic free, gluten free, natural and having no artificial color or flavor.

 

The NARTD tea market is a crowded space and, as a result, we believe in pricing our products competitively. We highlight to consumers our use of premium ingredients and our affordable price. The suggested retail price for an 18oz. bottle of Long Island Iced Tea® is $1.00 to $1.50 and the suggested retail price of The Original Long Island Brand™ Lemonade is $1.25 to $1.79 per 18oz. bottle. ALO Juice® has a suggested retail price of $1.49 to $1.79 for the 500 ml bottle and $2.39 to $2.79 for the 1.5 liter bottle. Management has set pricing levels to reflect current pricing dynamics in the industry. There has been downward pressure on prices, which management believes is caused by the entrance of major multinational beverage corporations into the alternative beverage category. This is starting to lead towards industry consolidation, in what is currently considered a somewhat fragmented marketplace.

 

Business Strategy

 

We are seeking to organically grow our NARTD tea and related product sales by capitalizing on an iconic name with unique brand awareness to create familiar and easily recognizable beverages.

 

We intend to increase our market share in our existing geographic markets and expand into additional geographic markets in the U.S. We have established distribution in a number of small international markets and are exploring distribution in additional international markets on a highly selective and limited basis, which may include royalty and licensing agreements. As discussed below in “Our Customers ,” we generally focus our sales efforts on approaching beverage distributors and taking advantage of their unique positioning in the retail industry. However, a portion of our sales efforts are also dedicated to direct sales to retailers, because some wholesale chains request direct shipments from the product supplier. In addition, we are exploring several new sales channels. We currently are conducting a small scale business trial in which we sell our beverage product alongside other snacks in vending machines. We also sell our twelve-ounce lower calorie products in schools, in some cases through sales to purchasing cooperatives that represent multiple school districts, but also via the vending machine business trial.

 

In March 2017, we entered into a long-term strategic distribution agreement with Big Geyser, a large independent non-alcoholic beverage distributor in metro New York, pursuant to which Big Geyser became the exclusive distributor of our iced tea bottle products. The agreement covers retail locations in the New York City metro region, including the five boroughs of New York City, Long Island, Westchester and Putnam County. This distribution coverage has the potential to significantly increase our distribution footprint and allow us to streamline our business and brings additional focus to building our brand. We are committed to building this relationship, including the recruitment of Robert Stefanizzi and a team of experienced industry professionals focused on expanding our products into Big Geyser’s distribution network.

 

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We continually seek to better develop emerging markets, as well as expand our overall geographic footprint. We have entered into new business arrangements involving international specialists contracted to (i) identify new market opportunities and (ii) assist in the overall management of our international expansion efforts. During 2017, we announced the appointment of a New Zealand based distributor and an Australian based distributor, as well as an Australian based co-packer with capability to produce products for Australasia and Asia. We have also focused on the development of markets in South America, and have announced expansion into Costa Rica, Columbia, Honduras, Ecuador and other Latin American countries. We have worked alongside existing distributor partnerships in Puerto Rico, Canada and South Korea to further expand distribution points throughout their respective markets.

 

Our strategy for ALO Juice includes increasing brand support through our existing sales and marketing team, ultimately accelerating points of distribution throughout current (and future) distributor and retail partnerships alongside our flagship iced tea and lemonade products.

 

We are currently securing ownership of the “Long Island Iced Tea” trademark in selective international jurisdictions via the Madrid protocol. Domestically, we are building our brand primarily by establishing comprehensive marketing plans that include but are not limited to trade marketing, customer appreciation programs, social media, pricing promotions and demos via brand ambassadors.

 

In the past twelve months, we have secured two material brand building, awareness and trial mechanics through the sponsorships of 1) Nassau Veterans Memorial Coliseum and 2) Barclays Center. These properties reinforce brand ownership in our key New York markets and promote trial and adoption across key demographics.

 

We also use co-op advertising (advertisements by retailers that include the specific mention of manufacturers, who, in turn, repay the retailers for all or part of the cost of the advertisement) and special promotions, together with its retail partners, so as to complement other marketing efforts towards brand awareness.

 

We also seek to expand our product line. From time to time, we explore and test market potential of new NARTD products that may, in the future, contribute to our operating performance. We expect that the introduction of The Original Long Island Brand™ Lemonade and growth of ALO Juice will be able to attract a new market segment of beverage drinkers.

 

Industry Opportunity

 

Iced Tea

 

Globally, NARTD tea products are ranked as the 4th largest beverage category, behind carbonated soft drinks, water and dairy. The non-alcohol iced tea global category size is estimated at $55 billion and growing at a 6.6% compound annual growth rate (“CAGR”). (Source: Euromonitor International, “Versatility of RTD Tea Generates Bright Spot in Global Soft Drinks”, May 2014.

 

We have executed a select number of international distribution opportunities – recruiting an International beverage consultant - with a mandate to initially effect distribution and co-pack agreements in Australia and New Zealand. We have also established a footprint in South America with distribution agreements in Costa Rica, Columbia, Honduras and Ecuador, with other relationships pending.

 

The U.S. non-alcoholic liquid refreshment beverage market consists of a number of different products, and CSDs are the top selling beverage category. However, consumers are increasingly coming to view CSDs (typically caffeinated as well as high in sugar and preservatives) with disfavor. In volume, the CSD category declined 0.6% in 2016, 1.5% in 2015, 1.6% in 2014, 2.3% in 2013 and 1.5% in 2012. (Sources: Euromonitor International, “Carbonates in the US”, February 2017).

 

CSDs have historically dominated the non-alcoholic liquid refreshment beverage market and been primarily controlled by two industry giants, Coca-Cola and PepsiCo. However, a number of beverages began to emerge in the 1990s as alternatives to CSDs as part of a societal shift towards beverages that are perceived to be healthier. The alternative beverage category of the market has resulted in the birth of multiple new product segments that include sports drinks, energy drinks and NARTD teas.

 

According to a 2017 Euromonitor International industry report, the U.S. NARTD tea segment was expected to have $7.1 billion of revenue in 2016, a 7.9% increase from the prior year and an 8.3% annualized growth rate over the last 5 years (2011 – 2016) (Source: Euromonitor International , “RTD Tea in the US”, February 2017). The industry report also forecasted an annual revenue growth rate of 5.3% over the coming five years, with revenues reaching $9.2 billion in 2021.

 

In 2014, consumers showed special interest in healthier versions of NARTD teas, preferring unsweetened teas.

 

RTD Tea Industry Revenue by Type (2017)

 

Black Tea   58.9%
Green and White Tea   24.7%
Herbal Tea   16.4%

 

(Source: IBISWorld Industry Report OD4297, “RTD Tea Production in the US”, October 2017).

 

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Lemonade

 

According to IBISWorld, lemonade comprises 8.2% of the $12.0 billion U.S. juice market in 2016. About 6.7 billion liters of juice were consumed in 2015, of which Lemonade sales totaled 451 million liters. (Source: IBISWorld Industry Report 31211c, “Juice Production in the US”, January 2017) According to a Technavio report, the Global lemonade drinks market is expected to grow at a CAGR of over 6% from 2017-2021. (Source: Technavio Market Research Report, “Global Lemonade Drinks Market 2017-2021”, July 2017)

 

ALO Juice

 

The global aloe vera-based drinks market is an expanding category, expected to grow at a CAGR of close to 10% during the forecast period for 2016 through 2020, according to a Technavio report dated November 2016. The Americas is expected to grow at an 11.24% CAGR over the same period. (Source: Technavio Market Research Report, “Aloe Vera-Based Drinks Market”, November 2016)

 

Other Brands

 

With the growing and sustainable distribution base, we now have the opportunity to develop domestic US and international brand portfolios via merger and acquisition opportunities, together with distribution and licensing opportunities. The building blocks we put in place over the last twelve months across the East Coast, including our partnership with Big Geyser, provides us with the infrastructure and management capabilities to pursue these extended goals.

 

Recent Developments

 

January 2017 Offering

 

In January 2017, we consummated a public offering (the “January 2017 Offering”) of an aggregate of 376,340 shares of our common stock, through Alexander Capital, L.P., as placement agent, pursuant to the terms of a selling agent agreement, dated January 25, 2017, with the placement agent and subscription agreements with each of the investors in the offering. Of the aggregate number of shares sold, 300,000 shares were sold to the public at a price of $4.00 per share and 76,340 of the shares were sold to our officers and directors at a price of $4.10 per share, the most recent closing bid price of the common stock at the time the officers and directors executed their subscription agreements. The offering generated gross proceeds of $1,513,000 and net proceeds of $1,429,740, after payment of the placement agent fees and other offering expenses.

 

The offering was made pursuant to our existing shelf registration statement on Form S-3 (File No. 333-213874), which was filed with the Securities and Exchange Commission (“SEC”) on September 30, 2016 and declared effective by the SEC on October 14, 2016 (the “Shelf Registration”), and is described in more detail in a prospectus supplement dated January 27, 2017 and the accompanying base prospectus dated October 14, 2016 (the “Base Prospectus”).

 

June 2017 Offering

 

In June 2017, we consummated a public offering (the “June 2017 Offering”) of an aggregate of 256,848 shares of our common stock, through Alexander Capital, L.P., as placement agent, pursuant to subscription agreements with each of the investors in the offering. Of the aggregate number of shares sold, 231,850 shares were sold to the public at a price of $5.00 per share and 24,998 of the shares were sold to our officers and directors at a price of $5.60 per share, the most recent closing bid price of the common stock at the time the officers and directors executed their subscription agreements. The offering generated gross proceeds of $1,299,250 and net proceeds of $1,259,415, after payment of the placement agent fees and other offering expenses.

 

The offering was made pursuant to our Shelf Registration, and is described in more detail in a prospectus supplement dated June 14, 2017 and the accompanying Base Prospectus.

 

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July 2017 Offering

 

In July 2017, we consummated a public offering (the “July 2017 Offering”) of an aggregate of 448,160 shares of our common stock, through Alexander Capital, L.P., as placement agent, pursuant to subscription agreements with each of the investors in the offering. The shares were sold at a price of $5.00 per share. Of the shares sold, 200,000 were sold to lead investors who, as a result of purchasing more than $500,000 in shares, each received (i) an additional number of shares of common stock equal to 7% of the total number of shares of common stock purchased by such lead investors in this offering (or an aggregate of 14,000 shares) and (ii) three-year warrants up to that number of shares of common stock equal to 20% of the total number of shares purchased by such lead investors in this offering (or warrants to purchase an aggregate of 40,000 shares). These warrants have an exercise price of $5.50 and were fully vested upon issuance. The sale of common stock generated gross proceeds of $2,240,800 and net proceeds of $2,134,487 after deducting commissions and other offering expenses.

 

The offering was made pursuant to our Shelf Registration, and is described in more detail in a prospectus supplement dated July 6, 2017 and the accompanying Base Prospectus.

 

October 2017 Offering

 

In October 2017, we consummated a public offering (the “October 2017 Offering”) of an aggregate of 607,500 shares of our common stock. The shares were sold at a price of $2.05 per share. The sale of common stock generated gross proceeds of $1,245,375 and estimated net proceeds of $1,235,375 after deducting expenses. Each investor in the offering also received a warrant to purchase 50% of the number of shares for which such investor subscribed in the offering (or a total aggregate number of shares underlying such warrants equal to 303,750 shares). The warrants have an exercise price of $2.40 per share, subject to adjustment, and expire one year from the closing of the offering.

 

The offering was made pursuant to our Shelf Registration, and is described in more detail in a prospectus supplement dated September 27, 2017 and the accompanying Base Prospectus.

 

Lemonade

 

On March 14, 2017, we announced the expansion of our brand to include lemonade. The Original Long Island Brand™ Lemonade range consists of nine real-fruit flavors, and is offered at retail in 18oz. bottles. This premium lemonade is intended to be differentiated from other lemonade beverages in the US market. It is made with 100% raw cane sugar and non-GMO ingredients that incorporate the “better-for-you” attributes that are prominent within our iced tea brand, and will complement Long Island Iced Tea®. This product became available in select markets during the second quarter of 2017. It is our objective to grow market share and offer this product alongside our iced tea products.

 

Big Geyser Strategic Distribution Partnership

 

On March 14, 2017, we entered into a long-term strategic distribution agreement, in certain regions, with Big Geyser, a large independent non-alcoholic beverage distributor in metro New York, pursuant to which Big Geyser became the exclusive distributor of our iced tea bottle products in the region. The agreement became effective on April 24, 2017 and covers retail locations in the New York City metro region, including the five boroughs of New York City, Long Island, Westchester and Putnam County. This distribution coverage will provide the potential to significantly increase our distribution footprint and allow us to streamline our business and brings additional focus to building our brand. As part of the distribution agreement, we have issued warrants to Big Geyser in the second and third quarter of 2017 which vest upon the achievement of certain performance targets.

 

ALO Juice

 

On September 18, 2017, we entered into an exclusive perpetual licensing agreement (“Licensing Agreement”) with The Wilnah International, LLC (“Wilnah”) ALO Juice brand owners, providing us with worldwide rights to produce, distribute and sell the ALO Juice brand. As compensation to Wilnah for these rights, we paid an initial fee of $150,000, which was applied against the Seba Distribution LLC (“Seba”) accounts receivable upon the closing and have agreed to pay to Wilnah a 7.0% royalty on our gross sales of ALO Juice sales delivered to our customers after the closing of this agreement. The majority owner of Wilnah is the former owner of Seba and the guarantor of its obligations. We believe that ALO Juice complements our “better for you” beverage strategy, and as such, we intend to further leverage and grow the ALO Juice brand and distribution.

 

Corporate Information

 

We were incorporated on December 23, 2014 in the State of Delaware. Our principal executive offices are located at 12-1 Dubon Court, Farmingdale, New York 11735. Our telephone number is (855) 542-2832. Our website address is www.longislandicedtea.com. The information contained on, or accessible from, our corporate website is not part of this prospectus and you should not consider information contained on our website to be a part of this prospectus or in deciding whether to purchase our common stock and [Class A] warrants.

 

5

 

 

 

THE OFFERING

 

Shares of Common Stock presently outstanding   ________ shares(1)
     
Securities offered by us   [●] shares of common stock together with [Class A] warrants to purchase [●] of our shares of common stock at the exercise price of $ per share (or [●]% of the price for each share sold in the offering). The [Class A] warrants will be immediately exercisable and will expire [5] years after the issuance date. An aggregate of [●] shares of common stock together with [Class A] warrants to purchase [●] of shares of common stock are being offered assuming the underwriters exercise their option to purchase additional shares and [Class A] warrants in full but assuming no exercise of the [Class A] warrants themselves or the Representative’s Warrant.
     
Common stock to be outstanding immediately after this offering  

[●] shares of common stock ([●] shares of common stock, if the underwriters exercise their option to purchase additional shares and [Class A] warrants in full but assuming no exercise of the [Class A] warrants themselves or the Representative’s Warrant).(1)

     

Underwriters’ Option to Purchase Additional Shares and

Warrants

 

The Underwriting Agreement provides that we will grant to the underwriters an option, exercisable within 45 days after the closing of this offering, to purchase up to an additional 15% of the total number of shares of common stock and [Class A] warrants to be offered by us pursuant to this offering. The option may be exercised in whole or in part during the 45 day option period.

     
Use of proceeds   We estimate that we will receive net proceeds of approximately $[●], and approximately $[●] million if the underwriters exercise their option to purchase additional shares and [Class A] warrants in full but assuming no exercise of the [Class A] warrants themselves or the Representative’s Warrant, after deducting underwriting discounts and commissions and estimated expenses payable by us.
     
Risk factors   Investing in our securities involves a high degree of risk. See “Risk Factors” below on page 8 to read about the risks you should consider before investing in our securities.
     
Listing   Our shares of common stock are listed on the Nasdaq Capital Market under the symbol “LTEA”. We have applied to list the [Class A] warrants offered hereby on the Nasdaq Capital Market under the symbol “LTEAW.”
     
Lock-Up Agreements    Subject to certain exceptions, we, all of our executive officers and directors, and certain affiliates have entered into lock-up agreements with the underwriters. Under these agreements, we and each of these persons may not, without the prior written approval of the Representative offer, sell, contract to sell or otherwise dispose of or hedge our shares of common stock or securities convertible into or exchangeable for our shares of common stock. These restrictions will be in effect for a period of six (6) months after the date of this prospectus.

 

(1) Based on 9,755,607 shares of common stock outstanding as of November 14, 2017. Excludes 2,196,558 shares of common stock subject to our currently outstanding options and warrants, with exercise prices ranging from $3.75 to $6.875 per share, and the [Class A] warrants that may be issued in this offering.

 

6

 

 

 

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

 

The information set forth below should be read in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus.

 

The summary consolidated data as of September 30, 2017 has been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The summary consolidated financial data for the nine months ended September 31, 2017 and 2016, have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The summary consolidated financial data as of December 31, 2016 and 2015 and for the years then ended have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated financial data as of December 31, 2014, 2013 and 2012 and for the years then ended is derived from audited financial statements of LIBB, as our predecessor, which are not included in this prospectus.

 

   For the Nine Months Ended
September 30,
   For the Years Ended
December 31,
 
   2017   2016   2016   2015   2014   2013   2012 
Income Statement Data:                                   
Net sales  $3,901,145   $3,412,961   $4,558,030   $1,899,230   $1,744,440   $886,061   $1,003,502 
Gross profit   237,741    159,683    318,713    343,090    240,294    152,325    72,956 
Operating loss   (11,239,936)   (5,829,953)   (7,789,073)   (3,052,229)   (3,041,083)   (264,120)   (128,824)
Total other expense   (352,559)   (2,560,311)   (2,658,516)   (128,040)   (110,298)   (53,812)   (44,108)
Net loss  $(11,592,495)  $(8,390,264)  $(10,447,589)  $(3,180,269)  $(3,151,381)  $(317,932)  $(172,932)
Net loss per share  $(1.36)  $(1.55)  $(1.77)  $(0.85)  $(1.20)  $(0.12)  $(0.07)
Weighted average shares outstanding - basic and diluted   8,529,399    5,407,036    5,889,428    3,744,931    2,633,334    2,633,334    2,633,334 

 

   As of
September 30,
   As of
December 31,
 
   2017   2016   2015   2014   2013   2012 
Balance Sheet Data:                              
Total current assets  $3,947,545   $6,648,745   $1,458,663   $1,143,481   $966,558   $423,199 
Total assets   4,830,399    7,784,284    3,752,597    1,429,808    1,032,425    482,482 
Total current liabilities   3,594,950    3,129,859    1,116,477    955,778    1,485,110    506,939 
Total liabilities   4,208,248    3,215,741    2,356,037    2,610,306    1,485,110    506,939 
Total stockholders’ equity (deficit)   622,151    4,568,543    1,396,560    (1,180,498)   (452,685)   (24,457)
Total liabilities and stockholders’ equity (deficit)  $4,830,399   $7,784,284   $3,752,597   $1,429,808   $1,032,425   $482,482 

 

7

 

 

RISK FACTORS

 

An investment in our securities involves a high degree of risk. Before deciding to invest in our securities, you should carefully consider the risks described below. These risks and uncertainties are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of these risks actually occurs, our business, financial condition and results of operations could be materially adversely affected. In that case, you may lose all or part of your investment in the securities.

 

Risks Related to Our Business

 

We operate in highly competitive markets, which could negatively affect our sales.

 

Our industry is highly competitive. We compete with multinational corporations with significant financial resources, including Dr. Pepper Snapple Group, Inc. and Arizona Beverage Company. These competitors can use their resources and scale to rapidly respond to competitive pressures and changes in consumer preferences by introducing new products, reducing prices or increasing promotional activities. We also compete against a variety of smaller, regional and private label manufacturers. Smaller companies may be more innovative, better able to bring new products to market and better able to quickly exploit and serve niche markets. Our inability to compete effectively could result in a decline in our sales. We are subject to competition from companies, including from some of our customers, that either currently manufacture or are developing products directly in competition with our products. These generic or store-branded products may be a less expensive option for consumers than our products making it more difficult to sell our product. As a result, we may have to reduce our prices or increase our spending on marketing, advertising and product innovation. Any of these could negatively affect our business and financial performance.

 

We may not effectively respond to changing consumer preferences, trends, health concerns and other factors. If we do not effectively anticipate these trends, then quickly develop new products, our sales could suffer.

 

Consumers’ preferences can change due to a variety of factors, including aging of the population, social trends, negative publicity, economic downturn or other factors. If we do not effectively anticipate these trends and changing consumer preferences, then quickly develop new products in response, our sales could suffer. Developing and launching new products can be risky and expensive. We may not be successful in responding to changing markets and consumer preferences, and some of our competitors may be better able to respond to these changes, either of which could negatively affect our business and financial performance.

 

Costs for our raw materials may increase substantially, which could negatively affect our financial performance.

 

The principal raw materials we use in our business are bottles, caps, labels, packaging materials, tea essence and tea base, sugar, natural flavors and other sweeteners, juice, electricity, fuel and water. The cost of the raw materials can fluctuate substantially. We may not be able to pass along any increases in such costs to our customers or consumers, which could negatively affect our business and financial performance. We presently do not mitigate our exposure to volatility in the prices of raw materials through the use of forward contracts, pricing agreements or other hedging arrangements.

 

Certain raw materials we use are available only from a limited number of suppliers. In the event our suppliers are unable or unwilling to meet our requirements, we could suffer shortages or substantial cost increases.

 

Most of the raw materials we use are available from only a few suppliers. If these suppliers are unable or unwilling to meet our requirements, we could suffer shortages or substantial cost increases. Changing suppliers can require long lead times. The failure of our suppliers to meet our needs could occur for many reasons, including fires, natural disasters, weather, manufacturing problems, disease, crop failure, strikes, transportation interruption, government regulation, political instability and terrorism. A failure of supply could also occur due to suppliers’ financial difficulties, including bankruptcy. Any significant interruption to supply or cost increase could substantially harm our business and financial performance.

 

8

 

 

Substantial disruption to production at our third party beverage co-packing facilities and our storage facilities could occur, which could disrupt or delay our production or cause us to incur substantially higher costs.

 

Our products are currently produced by three established co-packing companies. A disruption in our production at, or our relationships with, our third party beverage co-packing facilities could have a material adverse effect on our business. In addition, a disruption could occur at any of our storage facilities or those of our suppliers, co-packers or distributors. The disruption could occur for many reasons, including fire, natural disasters, weather, manufacturing problems, disease, strikes, transportation interruption, government regulation 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 rely, in part, on our third party beverage co-packing facilities to maintain the quality of our products. The failure or inability of this co-manufacturer to comply with the specifications and requirements of our products could result in product recall and could adversely affect our reputation.

 

We take great care in ensuring the quality and safety in the manufacture of our products. Our third-party co-manufacturer is required to maintain the quality of our products and to comply with our product specifications and requirements for certain certifications. Our third-party co-manufacturer is also required to comply with Food and Drug Administration requirements for manufacturing of our product. However, our products could still otherwise become contaminated. A contamination could occur in our operations or those of our bottlers, distributors or suppliers. This could result in expensive production interruptions, recalls and liability claims. Moreover, negative publicity could be generated from false, unfounded or nominal liability claims or limited recalls. Any of these failures or occurrences could negatively affect our business and financial performance.

 

We may be subject to litigation. The cost of defending against such litigation and the negative publicity related to such litigation may adversely affect our business, financial condition and results of operations.

 

From time to time in the normal course of our business operations, we may become subject to litigation that may result in liability or negatively affect our operating results. The cost to defend such litigation may be significant and may require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial condition and results of operations. For more information, see the item “Legal Proceedings” in the Annual Report and Quarterly Reports.

 

Fluctuations in our results of operations from quarter to quarter could have a disproportionate effect on our overall financial condition and results of operations.

 

We experience seasonal fluctuations in revenues and operating income. Historically, sales during the second and third fiscal quarters have generally been the highest. Any factors that harm our second or third quarter operating results, including adverse weather or unfavorable economic conditions, could have a disproportionate effect on our results of operations for the entire fiscal year. Unusually cool weather during the summer months may result in reduced demand for our products and have a negative effect on our business and financial performance.

 

In order to prepare for our peak selling season, we must produce and keep in stock more inventory than we would carry at other times of the year. Any unanticipated decrease in demand for our products during our peak selling season could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and gross profit.

 

A deterioration of global economic conditions may adversely affect our industry, business and results of operations.

 

Disruptions in the global credit and financial markets and in economic conditions generally may include diminished liquidity and credit availability, a decline in consumer confidence, a decline in economic growth, an increased unemployment rate and uncertainty about economic stability. Such disruptions may affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. Any adverse global economic conditions and tightening of credit in financial markets may lead consumers to postpone spending, which may cause our customers to cancel, decrease or delay their existing and future orders with us. In addition, financial difficulties experienced by our suppliers, manufacturers, distributors or customers could result in product delays, increased accounts receivable defaults and inventory challenges. We are unable to predict the likely duration and severity of disruptions in the credit and financial markets and adverse global economic conditions.

 

9

 

 

Our sales growth is dependent upon maintaining our relationships with existing distributors and retailers and the loss of any one such distributor or retailer could materially adversely affect our business and financial performance.

 

Certain retailers that we service primarily through our distributors make up a significant percentage of our products’ retail volume, including volume sold by our distributors. We also sell directly to certain retail accounts and to the distribution facilities of such retailers. Some retailers also offer their own private label products that compete with some of our brands. For the nine months ended September 30, 2017, two customers, Garden Foods and Big Geyser accounted for 21% and 12% of our net sales, respectively. For the year ended December 31, 2016, two customers, Seba Distribution LLC and Garden Foods accounted for 20% and 11% of our net sales, respectively. For the year ended December 31, 2015, one customer, Wakefern Food Corp., accounted for 10% of net sales. The loss of sales of any of our products in a major retailer could have a material adverse effect on our business and financial performance.

 

Food and beverage retailers in the U.S. have been consolidating which may reduce our ability to increase both our revenue and our gross margins.

 

Consolidation has resulted 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.

 

We do not have any contracts with our customers that require the purchase of a minimum amount of our products. The absence of such contracts could result in periods during which we must continue to pay costs and service indebtedness with reduced sales.

 

Our customers do not provide us with firm, long-term or short-term volume purchase commitments. As a result of the absence of such contracts, we could have periods during which we have no or limited orders for our products, but we will continue to have to pay our costs, including those to maintain our work force and service our indebtedness with reduced sales. We cannot assure you that we will be able to timely find new customers to supplement periods where we experience no or limited purchase orders or that we can recover fixed costs as a result of experiencing reduced purchase orders. Periods of no or limited purchase orders for our products could have a material adverse effect on our net income and cause us to incur losses. Conversely, we may experience unanticipated increased orders for our products from these customers that can create supply chain problems and may result in orders we may be unable to meet. Unanticipated fluctuations in product requirements by our customers could result in fluctuations in our results from quarter to quarter.

 

We have developed a gallon product line in which our gross margins are minimal, and therefore may not generate sufficient revenues or other benefits to justify its introduction. In addition, the gallon product line may divert sales from our higher margin 18oz. product line, which would adversely affect our business.

 

In May 2015, we developed a gallon product line featuring five of our existing flavors. Our gross margins on this product line are minimal. Accordingly, this product line may not generate sufficient revenues or other benefits to justify its introduction. In addition, to the extent distributors choose to carry the gallon product line instead of our higher margin 18oz. product line, it may negatively affect our operating results, specifically our gross margin. Although we believe the gallon size has a different function and manner of consumption, consumers may choose to purchase the gallon size instead of the 18oz. size, because the gallon size offers a better per ounce value. This would result in an overall lower gross margin for our business.

 

10

 

 

We do not have registered ownership of certain of our trade names and our intellectual property rights could be infringed or we could infringe the intellectual property rights of others, and adverse events regarding licensed intellectual property, including termination of distribution rights, could harm our business.

 

We possess intellectual property that is important to our business. This intellectual property includes our logo, trademarks for “Long Island Iced Tea” and “The Original Long Island Brand,” various other trademarks, copyrights, patents, ingredient formulas, business processes and other trade secrets. However, we do not currently have registered ownership of the trademark “The Original Long Island Brand” and do not have registered ownership on the principal register of the trademark “Long Island Iced Tea” as described below. We and third parties, including competitors, could come into conflict over intellectual property rights. Litigation could disrupt our business, divert management attention and cost a substantial amount to protect our rights or defend ourselves against claims. We cannot be certain that the steps we take to protect our rights will be sufficient or that others will not infringe or misappropriate our rights. Our business is also highly dependent upon our distribution rights. If we are unable to protect our intellectual property rights, including the right to our trade name and logo, our brands, products and business could be harmed and could have a material adverse effect on our business and financial performance.

 

On April 19, 2016, the United States Patent and Trademark Officer, or the “USPTO,” registered our mark “Long Island Iced Tea” (Registration No. 4,943,056) on the supplemental register. Registration on the supplemental register allows the use of the “®” symbol, blocks later filed applications for confusingly similar marks, and allows us to sue infringers in federal court, which has well-settled case law and standards. Notwithstanding the foregoing, the supplemental register does not provide all the protection of a registration on the principal register. As with any other registered mark, we may be open to claims of others contesting the trademark.

 

In addition, we have filed trademark applications for “The Original Long Island Brand” as a standard character mark and as a stylized mark, which applications are pending review by the USPTO. The applications are for use of the trademarks with iced tea, tea based products, juices, water, beverages and other similar products. We also plan to file for stylized marks protecting certain other tag lines and product designs. With respect to the pending trademark applications for “The Original Long Island Brand” (standard character mark and stylized mark), the USPTO has made an initial determination that both marks are geographically descriptive. This determination is refutable and the USPTO has afforded us the opportunity to produce evidence to establish that the marks have become distinctive of the goods in commerce. There can be no assurance that the USPTO will approve these applications.

 

If we incur substantial debt, it could adversely affect our liquidity and results of operations.

 

As of September 30, 2017, we had $71,403 of total indebtedness, consisting of auto and vending loans. In addition, until November 23, 2018, we may obtain up to a maximum of $3,500,000 in advances under our Credit and Security Agreement, or the “Credit Agreement,” dated as of November 23, 2015 and amended as of January 10, 2016 and April 8, 2016, by and among us, LIBB and Brentwood LIIT (NZ) Ltd., as successor in interest to Brentwood LIIT Inc., or “Brentwood.” Our ability to obtain advances under the Credit Agreement is subject to the terms and conditions of the Credit Agreement, including a requirement that we obtain prior approval of Brentwood for each advance. While our existing level of debt is not substantial and we may pay interest that accrues on any future loans under the Credit Agreement by capitalizing the interest and adding it to the principal balance of such loans, we may incur significant indebtedness in the future, including through advances under the Credit Agreement, and we may not be able to generate sufficient cash to service such debt as cash payments become due. If new debt and/or new credit sources are added to our existing debt and credit sources, the related risks for us could intensify.

 

If we incur substantial debt, it could have important consequences. In particular, it could:

 

 

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund capital expenditures and other general corporate purposes;

     
  limit, along with the restrictive covenants of our indebtedness, among other things, our ability to borrow additional funds;
     
  limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate;
     
  increase our vulnerability to general adverse economic and industry conditions; and
     
  place us at a competitive disadvantage compared to our competitors that have less debt.

 

11

 

 

In addition, if we are unable to make payments as they come due or comply with the restrictions and covenants in the Credit Agreement or any other agreements governing our indebtedness, there could be a default under the terms of such agreements. In such event, or if we are otherwise in default under the Credit Agreement or such other agreements, including pursuant to any cross-default provisions of such agreements, the lenders could terminate their commitments to lend and/or accelerate the loans and declare all amounts borrowed due and payable. Furthermore, our lenders under the Credit Agreement could foreclose on their security interests in our assets, including the equity interests in our material subsidiaries. If any of those events occur, our assets might not be sufficient to repay in full all of our outstanding indebtedness and we may be unable to find alternative financing. Even if we could obtain alternative financing, it might not be on terms that are favorable or acceptable to us. Additionally, we may not be able to amend the Credit Agreement or obtain needed waivers on satisfactory terms or without incurring substantial costs. Failure to maintain existing or secure new financing could have a material adverse effect on our liquidity and financial position.

 

The loss of the services of our key personnel could negatively affect our business, as could our inability to attract and retain qualified management, sales and technical personnel as and when needed.

 

The execution of our business strategy depends largely on the continued efforts of our executive management, including Julian Davidson (our Executive Chairman) and Philip Thomas (co-founder of LIBB and our Chief Executive Officer). As we have a limited operating history, we are highly dependent upon these individuals’ knowledge, experience and reputation within the industry. Any or all of these individuals may in the future choose to discontinue their employment with us. If so, we may not be able to find adequate replacements for them. Without their experience, expertise and reputation, our development efforts and future prospects would be substantially impaired. We have employment agreements in place with these individuals that include non-competition provisions.

 

We may not comply with applicable government laws and regulations, and they could change. Any violations could result in reputational damage or substantial penalties, and any changes could result in increased compliance costs.

 

We are subject to a variety of federal, state and local laws and regulations in the U.S., and other countries in which we do business. 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 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 soft drinks or ingredients could increase our costs. Regulatory focus on the health, safety and marketing of food products is increasing. Certain state warning and labeling laws, 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, could become applicable to our products. Some local and regional governments and school boards have enacted, or have proposed to enact, regulations restricting the sale of certain types of soft drinks in schools. Any violations or changes of regulations could have a material adverse effect on our profitability, or disrupt the production or distribution of our products, and negatively affect our business and financial performance.

 

Our ability to grow and compete in the future will be adversely affected if adequate capital is not available to us or not available on terms favorable to us.

 

Historically, our cash generated from operations has not been sufficient to meet our expenses. We have financed our operations principally through the raising of equity capital, debt and through trade credit with our vendors. Our ability to continue our operations and to pay our obligations when they become due is contingent upon obtaining additional financing. Management’s plans include raising additional funds through equity offerings, debt financings, or other means.

 

We believe that we will be able to raise sufficient additional capital to finance our planned operating activities. There are no assurances that we will be able to raise such capital on terms acceptable to the Company or at all. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned market development activities, and/or consider reductions in personnel costs or other operating costs. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

We have a limited operating history and history of operating losses, and there is no guarantee that we will achieve profitability.

 

We have a limited operating history and a history of operating losses. There is no guarantee that we will become a profitable business. Further, our future operating results depend upon a number of factors, including our ability to manage our growth, retain our customer base and to successfully identify and respond to emerging trends in our market areas.

 

12

 

 

Further growth into our ‘better-for-you’ brand portfolio may, in part, result from merger, acquisition, distribution or licensing agreements that require greater capability of management to effectively administer this growth and may have greater inherent risk.

 

We are constantly looking to grow our business through potential mergers, acquisitions, distribution agreements or licensing agreements. However, we may not be able to identify suitable candidates, obtain the capital necessary to pursue our strategy or have the agreements be on satisfactory terms. We will likely experience significant competition in our effort to execute a strategy as a number of competitors have also adopted a strategy of expanding and diversifying through acquisitions, mergers, distribution or licensing agreements. As a result, we may be unable to continue to further our growth strategy or may be forced to pay more for the growth than we would otherwise want to pay. When growth occurs, we may not be able to integrate or manage these businesses to produce returns that justify the investment. Any difficulty in successfully integrating or managing the operations of such growth could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity, and could lead to a failure to realize any anticipated synergies. Our management also will be required to dedicate substantial time and effort to the integration of any mergers, acquisitions, distribution or licensing agreements. These efforts could divert management’s focus and resources from other strategic opportunities and operational matters.

 

Risks Related to this Offering and an Investment in Our Common Stock and Warrants

 

We do not intend to pay cash dividends on our common stock in the foreseeable future.

 

We have not paid any cash dividends on our common stock to date. Any future decisions regarding dividends will be made by our board of directors. We do not anticipate paying dividends in the foreseeable future, but expect to retain earnings to finance the growth of our business. Therefore, any return on investments will only occur if the market price of our common stock appreciates.

 

A robust public market for our common stock may not develop or be sustained, which could affect your ability to sell our common stock or depress the market price of our common stock.

 

Our common stock is listed on NASDAQ, but we cannot assure you that our common stock will continue to trade on this market or another national securities exchange. In addition, we are unable to predict whether an active trading market for our common stock will develop or will be sustained.

 

Nasdaq may delist our securities from quotation on its exchange which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.

 

On October 9, 2017, we received a notice from the Nasdaq Listing Qualifications Department stating that, for the last 30 consecutive business days, the market value of our listed securities had been below the minimum of $35 million required for continued listing on Nasdaq under Nasdaq Listing Rule 5550(b)(2). The notification letter stated that we were afforded 180 calendar days (until April 9, 2018) to regain compliance. In order to regain compliance, the market value of our listed securities must remain at $35 million or more for a minimum of ten consecutive business days. The notification letter also stated that in the event we did not regain compliance within the 180 day period, our securities may be subject to delisting.

 

If Nasdaq delists our securities from trading on its exchange, we could face significant material adverse consequences, including:

 

  a limited availability of market quotations for our securities;

 

  reduced liquidity with respect to our securities;

 

  a determination that our shares of common stock are “penny stock” which will require brokers trading in our shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock;

 

  a limited amount of news and analyst coverage for our company; and

 

  a decreased ability to issue additional securities or obtain additional financing in the future.

 

13

 

 

The trading price and trading volume of our common stock may be volatile.

 

The price and volume of our common stock may be volatile and subject to fluctuations. Our stock has traded at a low of $2.01 to a high of $12.55 since January 1, 2016, and the current stock price is $2.55 as of November 20, 2017. Some of the factors that could cause fluctuations in the stock price or trading volume of our common stock include:

 

 

general market and economic conditions and market trends, including in the beverage industry and the financial markets generally;

     
  the political, economic and social situation in the U.S.;
     
  actual or expected variations in operating results;
     
 

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, capital commitments, or other business developments;

     
  adoption of new accounting standards affecting the industry in which we operate;

 

  operations and stock performance of competitors;
     
  litigation or governmental action involving or affecting us or our subsidiaries;
     
  recruitment or departure of key personnel;
     
  purchase or sales of blocks of our common stock; and
     
  operating and stock performance of the companies that investors may consider to be comparable.

 

There can be no assurance that the price of our common stock will not fluctuate or decline significantly. The stock market in recent years has experienced considerable price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies and that could materially adversely affect the price of our common stock, regardless of our operating performance. You should also be aware that price volatility might be worse if the trading volume of shares of our common stock is low, as it historically has been.

 

Our outstanding warrants and options will increase the number of shares outstanding and available for sale in the public markets, which may have an adverse effect on the market price of our common stock.

 

We presently have outstanding (i) stock options to purchase 1,065,989 shares of common stock at exercise prices of between $3.75 and $5.50 per share held by certain of our executive officers, directors and employees and (ii) warrants to purchase up to 1,130,570 shares of common stock at exercise prices of between $4.18 and $6.875 per share. Additionally, we will issue to the investors in this offering [Class A] warrants to purchase up to an additional _____ shares of common stock. If and to the extent these warrants and options are exercised, you may experience dilution to your holdings and/or it may have an adverse effect on the market price of our common stock. The market price of our common stock also may be adversely affected, if and to the extent the shares registered for resale pursuant to this prospectus are sold in the public markets.

 

The substantial number of shares that are eligible for sale pursuant to our resale registration statement could cause the market price for our common stock to decline or make it difficult for us to sell equity securities in the future.

 

We have an effective registration statement registering the resale by certain of our stockholders of up to 4,348,889 shares of our common stock. Expectations that shares of our common stock may be sold by the selling stockholders could create an “overhang” that may adversely affect the market price for our common stock.

 

We cannot predict the effect on the market price of our common stock from time to time as a result of (i) sales by the stockholders of some or all of the 4,348,889 shares of our common stock under our resale registration statement, (ii) the availability of such shares of common stock for sale by the selling stockholders, or (iii) the perception that such shares may be offered for sale by the selling stockholders. Sales of substantial amounts of shares of our common stock in the public market, or the perception that those sales will occur, could cause the market price of our common stock to decline or make future offerings of our equity securities more difficult. Any sale, or perceived impending sale, of a substantial number of shares of our common stock could cause our stock price to fluctuate or decline.

 

14

 

 

We have the ability to issue additional shares of common stock and “blank check” preferred stock, which could affect the rights of holders of the common stock.

 

Our amended and restated certificate of incorporation allows our board of directors to issue 35,000,000 shares of common stock and 1,000,000 shares of preferred stock and to set the terms of such preferred stock. As of November 15, 2017, we have 23,047,835 authorized but unissued shares of common stock available for issuance after appropriate reservation for our outstanding options and warrants (excluding any warrants that may be issued to the investors in this offering). The issuance of additional common stock may dilute the economic and voting rights of our existing stockholders. In addition, the terms of such preferred stock may materially adversely impact the dividend and liquidation rights of holders of the common stock.

 

Provisions in our amended and restated certificate of incorporation and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our common stock and could entrench management.

 

Our charter contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include a staggered board of directors and the ability of the board of directors to designate the terms of and issue new series of preferred stock. We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together, these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.

 

Our senior executive officers and directors may not be able to successfully manage a publicly traded company.

 

Not all of our senior executive officers or directors have extensive experience managing a publicly traded company, and they may not be successful in doing so. The demands of managing a publicly traded company, like ours, is much greater as compared to those of a private company, and some of our senior executive officers and directors may not be able to successfully meet those increased demands.

 

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

 

We are an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012 (“JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Investors may find our common stock less attractive because we rely, or may rely, on these exemptions. If some investors find our common stock less attractive as a result, the price of our common stock may be reduced, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.

 

In addition, under the JOBS Act, “emerging growth companies” can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”

 

We could remain an “emerging growth company” until December 31, 2020, although a variety of circumstances could cause us to lose that status earlier. For as long as we take advantage of the reduced reporting obligations, the information that we provide stockholders may be different from information provided by other public companies.

 

15

 

 

Obligations associated with being a public company require significant company resources and management attention, which may have a material adverse effect on our financial condition and results of operations.

 

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and the other rules and regulations of the SEC, including the Sarbanes-Oxley Act. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition and the Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. These reporting and other obligations place significant demands on our management, administrative, operational and accounting resources, make certain activities more time-consuming and cause us to incur significant legal, accounting and other expenses. In order to comply with these obligations, we may need to upgrade our systems or create new systems, implement additional financial and management controls, reporting systems and procedures, expand or outsource our internal audit function, and hire additional accounting and finance staff. Because our resources are limited compared to many public companies, these requirement may impose a disproportionate financial burden on us. Furthermore, our limited management resources may exacerbate the difficulties in complying with these reporting and other requirements and prevent us from focusing on executing our business strategy. In addition, if we are unable to comply with the financial reporting requirements and other rules that apply to reporting companies, the market price of our common stock could be adversely affected.

 

As an “emerging growth company” and a “smaller reporting company” we intend to continue to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” or “smaller reporting companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and other scaled disclosure requirements, 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. In general, we will remain an “emerging growth company” until December 31, 2020, although a variety of circumstances could cause us to lose that status earlier, and will remain a “smaller reporting company” for each fiscal year where our public float remains below $75 million as of the last day of the second fiscal quarter of the prior fiscal year. We intend to take advantage of some or all of these exemptions and reduced reporting requirements until we are no longer an “emerging growth company” and/or a “smaller reporting company,” at which time, we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance with these additional requirements.

 

There is currently no public market for the [Class A] warrants offered in this offering, and we can provide no assurance that a market for the [Class A] warrants may develop, which may make it difficult for our investors to sell their [Class A] warrants.

 

There is currently no market for the [Class A] warrants offered hereby. Holders of our [Class A] warrants therefore have no access to information about prior market history on which to base their investment decisions. Even though we plan to apply to list the [Class A] warrants on the Nasdaq Capital Market, an active trading market for the [Class A] warrants may never develop or, if developed, it may not be sustained. Our investors may not be able to sell [Class A] warrants unless a market can be established and sustained. In addition, following this offering, the price of our [Class A] warrants may vary significantly due to general market or economic conditions.

 

16

 

 

USE OF PROCEEDS

 

We estimate that we will receive net proceeds of approximately $        , and approximately $         million if the underwriters exercise their option to purchase additional shares and [Class A] warrants in full but assuming no exercise of the [Class A] warrants offered hereby or the Representative’s Warrant, after deducting underwriting discounts and commissions and estimated expenses payable by us.

 

We intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, sales and marketing activities, product development, general and administrative matters, capital expenditures and acquisitions. In the event that any net proceeds are not immediately applied, we may temporarily hold them as cash, deposit them in banks or invest them in cash equivalents or securities.

 

17

 

 

DIVIDEND POLICY

 

The declaration, timing and amount of any dividend is subject to the discretion of our board of directors and will be dependent upon our earnings, financial condition, market prospects, capital expenditure requirements, investment opportunities, overall market conditions and other factors. We have not declared any dividends since our inception. Our board of directors may review and amend our dividend policy from time to time in light of our plans for future growth and other factors. In addition, since we are a holding company with no material assets other than the shares of our subsidiaries and affiliates through which we conduct our operations, our ability to pay dividends will depend on our subsidiaries and affiliates distributing to us their earnings and cash flow.

 

18

 

 

PRICE RANGE OF OUR COMMON STOCK

 

The historical trading price of our common stock includes the trading of Cullen common stock from prior to the consummation of the business combination with Cullen and LIBB. Since July 29, 2016, our common stock has been listed on the Nasdaq Capital Market under the symbol “LTEA”. Prior to July 29, 2016, our common stock was quoted on the over-the-counter markets, as follows: from October 1, 2015 to July 28, 2016, on the OTCQB under the symbol “LTEA”; from July 27, 2015 to September 30, 2015, on the OTCBB under the symbol “LTEA”; and from June 1, 2015 (the effective date of the business combination for market trading purposes) to July 26, 2015, on the OTCBB under the symbol “OLIC.” Prior to June 1, 2015, Cullen’s common stock was quoted on the OTCBB under the symbol “CAGZ.” All historical trading prices have been adjusted to reflect the effective 15-to-1 reverse stock split that occurred as a result of the exchange ratio under the merger agreement, which provided for Cullen stockholders to receive one share of our common stock for every 15 shares of Cullen common stock held by them immediately prior to the business combination. The following table sets forth the range of high and low sales prices for the applicable period on a post-split basis.

 

   Common Stock 
   High ($)   Low ($) 
Fiscal Year Ended December 31, 2017:          
Fourth Quarter*  $2.85   $2.33 
Third Quarter   5.50    2.01 
Second Quarter   6.68    3.54 
First Quarter   4.60    3.70 
Fiscal Year Ended December 31, 2016:          
Fourth Quarter  $5.91   $3.73 
Third Quarter   8.39    4.00 
Second Quarter   12.55    6.81 
First Quarter   10.70    3.99 
Fiscal Year Ended December 31, 2015:          
Fourth Quarter  $9.75   $3.35 
Third Quarter   10.00    6.95 
Second Quarter**   11.25    1.00 
First Quarter   15.00    2.85 

 

*   Through November 20, 2017.
**   We consummated the business combination with Cullen and LIBB on May 27, 2015, which became effective for market trading purposes on June 1, 2015.

 

19

 

 

CAPITALIZATION

 

The following table sets forth our capitalization as of September 30, 2017:

 

  on an actual basis,
     
  On a pro forma basis, after giving effect to the issuance of 607,500 shares of our common stock at a public offering price of $2.05 completed by us in October 2017, and
     
  on a pro forma basis after this offering, after giving effect to the sale by us of all ____ shares and [Class A] warrants offered hereby, and after deducting the estimated offering expenses payable by us.

 

You should read this table together with our financial statements and the related notes thereto, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other financial information appearing elsewhere in this prospectus.

 

   September 30, 2017 
   Actual   Pro Forma   Pro Forma As Adjusted 
   (unaudited)   (unaudited)   (unaudited) 
             
Cash  $429,673   $1,665,048   $ 
Total Assets  $4,830,399   $6,065,774   $ 
                
Total Indebtedness  $71,403   $71,403   $71,403 
                
Long-Term Liabilities               
                
Stockholders’ Equity               
Preferred stock, par value $0.0001; authorized 1,000,000 shares; no shares issued and outstanding   -    -      
Common stock, par value $0.0001; authorized 35,000,000 shares; 9,148,107 shares issued and outstanding on an actual basis; 9,755,607 shares issued and outstanding on a pro forma basis; [●] shares issued and outstanding on a pro forma as adjusted basis   915    976      
Additional paid in capital   25,191,297    26,426,611      
Accumulated deficit   (24,570,061)   (24,570,061)     
Total Stockholders’ Equity  $622,151   $1,857,526   $ 
Total Capitalization  $693,554   $1,928,929   $ 

 

20

 

 

DILUTION

 

If you invest in our shares, your ownership interest will be diluted to the extent of the difference between the price you paid per share of common stock in this offering and the net tangible book value per share of our common stock after this offering. For purposes of calculating the dilution in this offering, none of the purchase price has been allocated to the warrants offered hereby. Net tangible book value per share represents total tangible assets less total liabilities, divided by the number of shares of common stock outstanding.

 

Our net tangible book value as of September 30, 2017 was approximately ($0.1) million, or approximately ($0.01) per share of common stock. Our pro forma net tangible book value as of September 30, 2017 would have been approximately $1.2 million, or approximately $0.12 per share of common stock, after giving effect to the recent stock issuance. Our pro forma as adjusted net tangible book value as of September 30, 2017 would have been approximately $[●] million, or $[●] per share of common stock, after giving effect to the sale by us of all [●] shares in this offering at the offering price of $[●] per share, and after deducting the estimated offering expenses payable by us. This represents an immediate increase in net tangible book value of $[●] per share to existing stockholders and an immediate dilution of $[●] per share to new investors in this offering.

 

The following table illustrates this dilution on a per share basis for investors purchasing shares at $[●] per share:

 

Public offering price per share to investors in this offering       $[●] 
Pro forma net tangible book value per share as of September 30, 2017  $0.12      
Increase in net tangible book value attributable to this offering   [●]      
Pro forma as adjusted net tangible book value per share as of September 30, 2017        [●] 
Dilution per share to investors in this offering       $[●] 

 

The calculations above are based on 9,148,107 shares of common stock outstanding on September 30, 2017, 9,755,607 shares of common stock as of September 30, 2017 after giving effect to recent share issuance and [●] shares of common stock outstanding as of September 30, 2017 after giving effect to the sale of all [●] shares in this offering. The calculations above do not take into account the 2,196,558 shares of common stock subject to our currently outstanding warrants and options, with exercise prices ranging from $3.75 to $6.875 per share, or the warrants to purchase up to [●] shares of common stock that may be issued to the investors in this offering.

 

Because there is no minimum amount of shares that must be sold as a condition to closing this offering, the dilution per share to new investors may be more than that indicated above in the event that the actual number of shares sold, if any, is less than the maximum number of shares we are offering. In addition, if we issue additional shares of our common stock in the future, including upon the exercise of outstanding options or warrants or the vesting of the restricted stock units, you may experience further dilution.

 

21

 

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

 

The information set forth below should be read in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus.

 

The selected consolidated data as of September 30, 2017 has been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The selected consolidated financial data for the nine months ended September 31, 2017 and 2016, have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The selected consolidated financial data as of December 31, 2016 and 2015 and for the years then ended have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated financial data as of December 31, 2014, 2013 and 2012 and for the years then ended is derived from audited financial statements of LIBB, as our predecessor, which are not included in this prospectus.

 

   For the Nine Months Ended
September 30,
   For the Years Ended
December 31,
 
   2017   2016   2016   2015   2014   2013   2012 
Income Statement Data:                                   
Net sales  $3,901,145   $3,412,961   $4,558,030   $1,899,230   $1,744,440   $886,061   $1,003,502 
Cost of Goods Sold   3,663,404    3,253,278    4,239,317    1,556,140    1,504,146    733,736    930,546 
Gross profit   237,741    159,683    318,713    343,090    240,294    152,325    72,956 
General and administrative expenses   5,169,174    3,957,763    4,958,076    1,946,270    1,073,867    308,800    161,054 
Selling and marketing expenses   6,308,503    2,031,873    3,149,710    1,449,049    2,207,510    107,645    40,726 
Operating loss   (11,239,936)   (5,829,953)   (7,789,073)   (3,052,229)   (3,041,083)   (264,120)   (128,824)
Other (expense) income   (38,986)   4,070    (3,593)   (3,327)   -    -    - 
Interest expense   (313,573)   (976,427)   (1,066,969)   (124,713)   (110,298)   (53,812)   (44,108)
Loss on inducement   -    (1,587,954)   (1,587,954)   -    -    -    - 
Total other expense   (352,559)   (2,560,311)   (2,658,516)   (128,040)   (110,298)   (53,812)   (44,108)
Net loss  $(11,592,495)  $(8,390,264)  $(10,447,589)  $(3,180,269)  $(3,151,381)  $(317,932)  $(172,932)
Net loss per share  $(1.36)  $(1.55)  $(1.77)  $(0.85)  $(1.20)  $(0.12)  $(0.07)
Weighted average shares outstanding - basic and diluted   8,529,399    5,407,036    5,889,428    3,744,931    2,633,334    2,633,334    2,633,334 

 

22

 

 

   As of
September 30,
   As of
December 31,
 
   2017   2016   2015   2014   2013   2012 
Balance Sheet Data:                              
Current Assets:                              
Cash  $429,673   $1,249,550   $207,192   $398,164   $604,841   $25,960 
Accounts receivable, net   1,556,801    1,627,058    363,096    174,637    118,102    133,102 
Inventories, net   1,697,251    1,187,941    712,558    561,107    165,907    234,491 
Restricted cash   -    103,603    127,580    -    -    - 
Short term investments   -    2,389,521    -    -    -    - 
Prepaid expenses and other current assets   263,820    91,072    48,237    9,573    77,708    29,646 
Total current assets   3,947,545    6,648,745    1,458,663    1,143,481    966,558    423,199 
Property and equipment, net   148,425    218,036    360,920    242,123    33,717    54,383 
Intangible assets   170,000    22,500    27,494    32,498    20,000    - 
Other assets   56,635    52,470    67,438    11,706    12,150    4,900 
Deferred financing costs   507,794    842,533    1,838,082    -    -    - 
Total assets  $4,830,399   $7,784,284   $3,752,597   $1,429,808   $1,032,425   $482,482 
Current Liabilities:                              
Accounts payable  $2,047,727   $886,316   $601,681   $825,044   $-   $- 
Accrued expenses   1,380,097    911,843    458,938    112,819    85,110    15,829 
UBS Credit Line   -    1,280,275    -    -    -    - 
Loans payable   -    -    -    -    1,400,000    - 
Line of credit - member   -    -    -    -    -    491,110 
Current portion of automobile loans   8,640    11,446    19,231    17,915    -    - 
Current portion of equipment loan   47,910    39,979    36,627    -    -    - 
Other current liabilities   110,576    -    -    -    -    - 
Total current liabilities   3,594,950    3,129,859    1,116,477    955,778    1,485,110    506,939 
Line of credit, related party   -    -    1,091,571    1,500,000    -    - 
Subcsriptions payable   563,750    -    -    -    -    - 
Other liabilities   30,000    30,000    30,000    92,466    -    - 
Deferred rent   4,695    1,807    4,648    5,966    -    - 
Long term portion of automobile loans   11,066    17,580    36,864    56,096    -    - 
Long term portion of equipment loan   3,787    36,495    76,477    -    -    - 
Total liabilities   4,208,248    3,215,741    2,356,037    2,610,306    1,485,110    506,939 
Total stockholders’ equity (deficit)   622,151    4,568,543    1,396,560    (1,180,498)   (452,685)   (24,457)
Total liabilities and stockholders’ equity (deficit)  $4,830,399   $7,784,284   $3,752,597   $1,429,808   $1,032,425   $482,482 

 

 

23

 

 

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

 

The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. See “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

 

Overview

 

We are a holding company operating through our wholly-owned subsidiary, LIBB. We are engaged in the production and distribution of premium Non-Alcoholic ready-to-drink (“NARTD”) beverages. We are currently organized under our flagship brand, Long Island Iced Tea, a premium NARTD tea made from a proprietary recipe and with quality components. Our mission is to provide consumers with premium beverages offered at an affordable price.

 

We aspire to be a market leader in the development of beverages that are convenient and appealing to consumers. There are two major target markets for our beverages: “consumers on the go” and “health conscious consumers.” “Consumers on the go” are families, employees, students and other consumers who lead a busy lifestyle. With increasingly hectic and demanding schedules, there is a need for products that are accessible and readily available. “Health conscious consumers” 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 carbonated soft drinks, towards alternative beverages such as iced tea.

 

We continually seek to expand our product line. Our current products include iced tea, lemonade and aloe vera juice.

 

We produce a 100% brewed iced tea, using black tea leaves, purified water and natural cane sugar or sucralose. Flavors change from time to time, and have included lemon, peach, raspberry, guava, mango, diet lemon, diet peach, sweet tea, green tea and honey, half tea and half lemonade. We also offer lower calorie iced tea in flavor options that include mango, raspberry and peach. We also sell the iced tea in gallon bottles with flavor options including lemon, peach, green tea and honey, half and half lemonade, sweet tea, mango and unsweetened.

 

During April 2017, we expanded our brand to include lemonade. Lemonade is offered in nine flavors including traditional, lime, pink lemonade, kiwi & strawberry, cherry, peach, watermelon, wild berries and strawberry and is offered at retail in 18oz. bottles.

 

We also distribute an aloe vera derived juice beverage (“ALO Juice”) in 500ml and 1.5 liter bottles. ALO Juice is offered in six flavors including original, pomegranate, mango, raspberry, pineapple and coconut. Our plans for ALO Juice include increasing brand support through our existing sales and marketing team, ultimately accelerating points of distribution throughout current (and future) distributor and retail partnerships alongside our flagship iced tea and lemonade products. In addition, in order to service certain vending contracts, we sell snacks and other beverage products on a limited basis.

 

We are also seeking to better develop emerging markets, as well as expand our overall geographic footprint. The United States (“US”) market represents approximately $7 billion of a global $57 billion NARTD international market (Sources: Euromonitor international, “Versatility of NARTD Tea Generates Bright Spot in Global Soft Drinks”, 2014, and Euromonitor International “NARTD in the US”, February 2017). The recognition globally of our flagship ‘Long Island Iced Tea’ brand makes international expansion a key business objective. We continue to retain the consulting services of an international beverage specialist, and have during the quarter, applied additional consulting resources to look at opportunities in Northeast Asia. During 2017, we announced the appointment of a New Zealand based distributor and an Australian based distributor, as well as an Australian based co-packer with capability to produce products for Australasia and Asia. We have also focused on the development of markets in South America, and have announced expansion into Costa Rica, Columbia, Honduras, Ecuador and other Latin American countries. We also worked alongside existing distributor partnerships in Puerto Rico, Canada and South Korea to further expand distribution points throughout their respective markets. Additional 2017 developments include new retail partnerships opened with supermarket chains such as Pueblos and Supermax in Puerto Rico and Loblaws in Canada, and multiple reorders received from the South Korean distributor.

 

24

 

 

We were incorporated on December 23, 2014 in the State of Delaware. Our corporate offices are located at 12-1 Dubon Court, Farmingdale, NY 11735 and our telephone number at that location is (855) 542-2832.

 

Recent Developments

 

January 2017 Offering

 

In January 2017, we consummated the January 2017 Offering of an aggregate of 376,340 shares of our common stock, through Alexander Capital, L.P., as placement agent, pursuant to the terms of a selling agent agreement, dated January 25, 2017, with the placement agent and subscription agreements with each of the investors in the offering. Of the aggregate number of shares sold, 300,000 shares were sold to the public at a price of $4.00 per share and 76,340 of the shares were sold to our officers and directors at a price of $4.10 per share, the most recent closing bid price of the common stock at the time the officers and directors executed their subscription agreements. The offering generated gross proceeds of $1,513,000 and net proceeds of $1,429,740, after payment of the placement agent fees and other offering expenses.

 

The offering was made pursuant to our existing Shelf Registration which was filed with the SEC on September 30, 2016 and declared effective by the SEC on October 14, 2016, and is described in more detail in a prospectus supplement dated January 27, 2017 and the accompanying Base Prospectus.

 

June 2017 Offering

 

In June 2017, we consummated the June 2017 Offering of an aggregate of 256,848 shares of our common stock, through Alexander Capital, L.P., as placement agent, pursuant to subscription agreements with each of the investors in the offering. Of the aggregate number of shares sold, 231,850 shares were sold to the public at a price of $5.00 per share and 24,998 of the shares were sold to our officers and directors at a price of $5.60 per share, the most recent closing bid price of the common stock at the time the officers and directors executed their subscription agreements. The offering generated gross proceeds of $1,299,250 and net proceeds of $1,259,415, after payment of the placement agent fees and other offering expenses.

 

The offering was made pursuant to our Shelf Registration, and is described in more detail in a prospectus supplement dated June 14, 2017 and the accompanying Base Prospectus.

 

July 2017 Offering

 

In July 2017, we consummated the July 2017 Offering of an aggregate of 448,160 shares of our common stock, through Alexander Capital, L.P., as placement agent, pursuant to subscription agreements with each of the investors in the offering. The shares were sold at a price of $5.00 per share. Of the shares sold, 200,000 were sold to lead investors who, as a result of purchasing more than $500,000 in shares, each received (i) an additional number of shares of common stock equal to 7% of the total number of shares of common stock purchased by such lead investors in this offering (or an aggregate of 14,000 shares) and (ii) three-year warrants up to that number of shares of common stock equal to 20% of the total number of shares purchased by such lead investors in this offering (or warrants to purchase an aggregate of 40,000 shares). These warrants have an exercise price of $5.50 and were fully vested upon issuance. The sale of common stock generated gross proceeds of $2,240,800 and net proceeds of $2,134,487 after deducting commissions and other offering expenses.

 

The offering was made pursuant to our Shelf Registration, and is described in more detail in a prospectus supplement dated July 6, 2017 and the accompanying Base Prospectus.

 

October 2017 Offering

 

In October 2017, we consummated the October 2017 Offering of an aggregate of 607,500 shares of our common stock. The shares were sold at a price of $2.05 per share. The sale of common stock generated gross proceeds of $1,245,375 and estimated net proceeds of $1,235,375 after deducting expenses. Each investor in the offering also received a warrant to purchase 50% of the number of shares for which such investor subscribed in the offering (or a total aggregate number of shares underlying such warrants equal to 303,750 shares). The warrants have an exercise price of $2.40 per share, subject to adjustment, and expire one year from the closing of the offering.

 

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The offering was made pursuant to our Shelf Registration, and is described in more detail in a prospectus supplement dated September 27, 2017 and the accompanying Base Prospectus.

 

Brooklyn Sports and Entertainment

 

Nassau Veterans Memorial Coliseum

 

On February 16, 2017, we formed an alliance with Brooklyn Sports and Entertainment to become the official iced tea of Nassau Veterans Memorial Coliseum presented by New York Community Bank. We have the exclusive iced tea serving rights in the venue including all concession stands and luxury suites. The alliance also includes high profile interior and exterior LED branding, as well as digital and retail promotional opportunities. After a complete refurbishment, the venue reopened on April 5, 2017.

 

Barclays Center

 

On September 21, 2017, we expanded our alliance with Brooklyn Sports and Entertainment to become the official iced tea of Barclays Center. We have the exclusive iced tea serving rights in the venue including all concession stands and luxury suites. The alliance also includes high profile interior and exterior LED branding, as well as digital and retail promotional opportunities.

 

Lemonade

 

On March 14, 2017, we announced the expansion of our brand to include lemonade. The Original Long Island Brand™ Lemonade range consists of nine real-fruit flavors, and is offered at retail in 18oz. bottles. This premium lemonade is intended to be differentiated from other lemonade beverages in the US market. It is made with 100% raw cane sugar and non-GMO ingredients that incorporate the “better-for-you” attributes that are prominent within our iced tea brand, and will complement Long Island Iced Tea®. This product became available in select markets during the second quarter of 2017. It is our objective to grow market share and offer this product alongside our iced tea products.

 

Big Geyser Strategic Distribution Partnership

 

On March 14, 2017, we entered into a long-term strategic distribution agreement, in certain regions, with Big Geyser, a large independent non-alcoholic beverage distributor in metro New York, pursuant to which Big Geyser became the exclusive distributor of our iced tea bottle products in the region. The agreement became effective on April 24, 2017 and covers retail locations in the New York City metro region, including the five boroughs of New York City, Long Island, Westchester and Putnam County. This distribution coverage will provide the potential to significantly increase our distribution footprint and allow us to streamline our business and brings additional focus to building our brand. As part of the distribution agreement, we have issued warrants to Big Geyser in the second and third quarter of 2017 which vest upon the achievement of certain performance targets.

 

ALO Juice

 

On September 18, 2017, we entered into an exclusive Licensing Agreement with Wilnah ALO Juice brand owners, providing us with worldwide rights to produce, distribute and sell the ALO Juice brand. As compensation to Wilnah for these rights, we paid an initial fee of $150,000, which was applied against the Seba accounts receivable upon the closing and have agreed to pay to Wilnah a 7.0% royalty on our gross sales of ALO Juice delivered to our customers after the closing of this agreement. The majority owner of Wilnah is the former owner of Seba and the guarantor of its obligations. We believe that ALO Juice complements our “better for you” beverage strategy, and as such, we intend to further leverage and grow the ALO Juice brand and distribution.

 

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Highlights

 

We generate income through the sale of our beverage products. The following are highlights of our operating results for the three and nine months ended September 30, 2017:

 

  Net sales. During the three months ended September 30, 2017, we had net sales of $1,554,895 representing, an increase of $253,770 over the three months ended September 30, 2016. The increase is due principally to revenue improvements in iced tea and the introduction of lemonade, offset by declines in gallons and ALO Juice. During the nine months ended September 30, 2017, we had net sales of $3,901,145, an increase of $488,184 over the nine months ended September 30, 2016.
     
   Margin. Our gross profit percentage decreased by 4% and our gross profit decreased by $35,705 for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. Our gross profit percentage increased by 1% and our gross profit increased by $78,058 for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The decrease for the three months ended September 30, 2017 was principally attributable to increases in discounts and allowances. The increase for the nine months ended September 30, 2017 was primarily due to improvements in our gallon iced tea and lemonade product lines.
     
   Operating expenses. During the three months ended September 30, 2017, our operating expenses were $3,867,258, representing an increase of $1,035,489 as compared to the three months ended September 30, 2016. During the nine months ended September 30, 2017, our operating expenses were $11,477,677, representing an increase of $5,488,041 as compared to the nine months ended September 30, 2016. The increase in operating expenses related primarily to increased payroll (including stock-based compensation), Strategy Committee and Board of Directors fees, professional fees and services, freight, advertising, bad debt expense and product development.

 

Historically, our cash generated from operations has not been sufficient to meet our expenses. During 2017, we have principally financed our business through the sale of equity interests. During the nine months ended September 30, 2017, our cash flows used in operating activities were $7,403,966, our net cash provided by investing activities was $2,446,069 and our net cash provided by financing activities was $4,138,020. We had working capital of $352,595 as of September 30, 2017.

 

In order to execute our long-term growth strategy, we expect to continue to raise additional funds through equity offerings, debt financings, or other means. There are no assurances that we will be able to raise such funds on acceptable terms or at all. See Sources of Liquidity and Going Concern below.

 

Uncertainties and Trends in Our Business

 

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

 

  We believe that using various marketing tools, which may result in significant advertising expenses, will be necessary 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 who may generate substantial portions of our revenue. These include sales to retailers where there may be concentrations.
     
  Our sales are subject to seasonality. Our sales are typically the strongest in the summer months.
     
  We are currently involved in litigation. Please refer to Note 8 of the condensed consolidated financial statements included elsewhere in this prospectus. There are no assurances that there will be successful outcomes to these matters.
     
  Our portfolio includes a gallon iced tea product line featuring six of our existing flavors. Our gallon iced tea product line has previously sold below cost. There are no assurances we will be successful in increasing margins on this product line.
     
  We operate in highly competitive markets.
     
  Costs for our raw materials may increase substantially.
     
  Our intellectual property rights could be infringed upon or we could infringe upon the intellectual property rights of others.
     
  Adverse events regarding licensed intellectual property, including termination of distribution rights, could harm our business.
     
  We have experienced cash losses from operations and our ability to grow and compete in the future will be adversely affected if adequate capital is not available to us.
     
  We have a limited operating history.

 

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Accounting Policies

 

The preparation of the financial statements in conformity with United States Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in these consolidated financial statements. We believe that, of our significant accounting policies (see Note 2 of our condensed consolidated financial statements included elsewhere in this prospectus), the following policies are the most critical.

 

Revenue Recognition

 

Revenue is stated net of sales discounts, rebates paid to customers, establishment incentives, placement fees and returns. Net sales are recognized when all of the following conditions are met: (1) the price is fixed and determined; (2) evidence of a binding arrangement exists (generally, purchase orders); (3) products have been delivered and there is no future performance required; and (4) amounts are collectible under normal payment terms. These conditions typically occur when the products are delivered to or picked up by the Company’s customers. For sales where certain revenue recognition criteria have not been met at the date of delivery, the Company defers recognition of such revenue until such recognition criteria are met.

 

Customer Marketing Programs and Sales Incentives

 

We participate in various programs and arrangements with customers designed to increase the sale of its products. Among these programs are arrangements under which allowances can be earned by customers for attaining agreed upon sales levels or for participating in specific marketing programs. We believe that our participation in these programs is essential to ensuring volume and revenue growth in a competitive marketplace. The costs of all these various programs are recorded as a reduction of sales in the financial statements.

 

Additionally, we may be required to occasionally pay fees to our customers (“Placement Fees”) in order to place our products in the customers’ stores. In most cases, the Placement Fees carry no further benefit or minimum revenue guarantee other than the right to place our product in the customers’ stores. The Placement Fees are recorded as a reduction of sales. If, at the time the Placement Fees are recognized in the statement of operations, we have cumulative negative sales with that particular customer, such negative sales are reclassified and recorded as a part of selling and marketing expense.

 

Accounts Receivable

 

We sell products to distributors and directly to retailers, and extend credit, generally without requiring collateral, based on our evaluation of the customer’s financial condition. Potential losses on our receivables are dependent on each individual customer’s financial condition and sales adjustments granted after the balance sheet date. We carry our trade accounts receivable at net realizable value. Typically, accounts receivable have terms of net 30 days and do not bear interest. We monitor our exposure to losses on receivables and maintains allowances for potential losses or adjustments. We determine these allowances by (1) evaluating the aging of our receivables; (2) analyzing our history of sales adjustments; and (3) reviewing our high-risk customers. Past due receivable balances are written off when our efforts have been unsuccessful in collecting the amount due. Accounts receivable are stated at the amounts management expects to collect. For sales where certain revenue recognition criteria have not been met at the date of delivery, we defer recognition of such accounts receivable until such recognition criteria are met.

 

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Inventories

 

Our inventory includes raw materials such as bottles, sweeteners, labels, flavors and packaging. Finished goods inventory consists of bottled and packaged iced tea, lemonade and ALO Juice. We value our inventories at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (FIFO) method. Included in inventory at September 30, 2017 and December 31, 2016, was finished goods inventory with a cost of approximately $95,000 and $320,000, respectively which was delivered to a distributor, and is held in inventory until revenue recognition criteria are met.

 

Results of Operations

 

Comparison for the three and nine months ended September 30, 2017 and 2016

 

   For the Three Months Ended
September 30,
   For the Nine Months Ended September 30, 
   2017   2016   2017   2016 
Net sales  $1,554,895   $1,301,125   $3,901,145   $3,412,961 
Cost of goods sold   1,486,265    1,196,790    3,663,404    3,253,278 
Gross profit   68,630    104,335    237,741    159,683 
Operating expenses:                    
General and administrative expenses   1,543,786    2,170,522    5,169,174    3,957,763 
Selling and marketing expenses   2,323,472    661,247    6,308,503    2,031,873 
Total operating expenses   3,867,258    2,831,769    11,477,677    5,989,636 
Operating Loss   (3,798,628)   (2,727,434)   (11,239,936)   (5,829,953)
Other expenses:                    
Other income (expense)   -    4,070    (38,986)   4,070 
Interest expense, net   (114,150)   (579,710)   (313,573)   (976,427)
Loss on inducement   -    (1,587,954)   -    (1,587,954)
Net loss  $(3,912,778)  $(4,891,028)  $(11,592,495)  $(8,390,264)

 

Comparison of the Three Months Ended September 30, 2017 and 2016

 

Net Sales and Gross Profit

 

Net sales for the three months ended September 30, 2017 increased by $253,770, or 20%, to $1,554,895 as compared to $1,301,125 for the three months ended September 30, 2016. The increase is driven by $390,953 of lemonade sales and an increase of $242,189 in 18/20oz iced tea sales. This was partially offset by a $238,300 decline in sales of our ALO Juice product line.

 

Gross profit decreased by $35,705, or 34%, to $68,630 for the three months ended September 30, 2017 from $104,335 for the three months ended September 30, 2016. The change in gross profit amount consisted of a decrease of approximately $40,000 in gross profit for iced tea sold in gallons, and a decrease in gross profit of approximately $57,000 for ALO Juice, offset by an increase in gross profit of approximately $75,000 on sales of lemonade. Our gross profit percentage decreased by approximately 4% for the three months ended September 30, 2017, as compared to 2016, on account of increases in discounts and allowances.

 

General and administrative expenses

 

General and administrative expenses for the three months ended September 30, 2017 decreased by $626,736, or 29%, to $1,543,786 as compared to $2,170,522 for the three months ended September 30, 2016. We incurred a decrease of $656,826 in stock-based compensation costs. The remainder of the cost increases are primarily related to costs incurred in support of the expansion of the business, including increases in rent and storage fees, insurance costs, website and internet costs.

 

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Selling and marketing expenses

 

Selling and marketing expenses for the three months ended September 30, 2017 increased by $1,662,225, or 251%, to $2,323,472 as compared to $661,247 for the three months ended September 30, 2016. The increase was principally the result of key management hires to expand the capabilities of the sales and marketing organization, strategic spending in support of brand and investor awareness and increases in freight out and other costs consistent with the revenue growth. Specifically, our personnel cost increased by approximately $457,000 in connection with the hiring of additional sales and marketing staff, our brand awareness investor and public relations costs increased by $662,600 due to increased investor relation spending, and we increased advertising expense by $179,775.

 

Interest expense, net

 

Interest expense, net, for the three months ended September 30, 2017 decreased by $465,560, or 80%, to $114,150 as compared to $579,710 for the three months ended September 30, 2016. Interest expense for the three months ended September 30, 2017, principally consisted of the amortization of deferred financing costs of $111,580.

 

Comparison of the Nine Months Ended September 30, 2017 and 2016

 

Net Sales and Gross Profit

 

Net sales for the nine months ended September 30, 2017 increased by $488,184, or 14%, to $3,901,145 as compared to $3,412,961 for the nine months ended September 30, 2016. The increase was primarily due to the introduction of the lemonade flagship brand in the second quarter, which contributed $592,526 to the increase in net sales. Net sales of our ALO Juice during the nine months ended September 30, 2017 decreased by $147,352 to $648,381 as compared to $795,733 for the nine months ended September 30, 2016. Net sales of our 18/20oz. iced tea product increased by $200,981 after a decrease to net sales of $255,634 on account of a non-cash incentive to Big Geyser in the nine months ended September 30, 2017.

 

Gross profit increased by $78,058, or 49%, to $237,741 for the nine months ended September 30, 2017 from $159,683 for the nine months ended September 30, 2016. The change in gross profit consisted of an increase of approximately $190,000 in gross profit for iced tea sold in gallons, an increase in gross profit of approximately $114,000 for lemonade, a decrease in gross profit of approximately $29,000 in sales of ALO Juice and a decrease in gross profit of approximately $115,000 for iced tea sold in 18/20oz. Our gross profit percentage increased to approximately 6% for the nine months ended September 30, 2017 as compared to approximately 5% for the nine months ended September 30, 2016, on account of improvements in gallons and the introduction of lemonade.

 

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General and administrative expenses

 

General and administrative expenses for the nine months ended September 30, 2017 increased by $1,211,411, or 31%, to $5,169,174 as compared to $3,957,763 for the nine months ended September 30, 2016. This increase was principally the result of our efforts to build out our management and support team to support our growth and enhance our corporate governance. Specifically, we incurred costs of approximately $826,000 associated with accounting, other consulting and legal in support of the business expansion and complexity. We incurred bad debt charges of $516,392. These were principally off-set by a decrease in our personnel costs of $271,855 and a decrease in stock-based compensation costs of $142,543. The remainder of the cost increases are primarily related to costs incurred in support of the expansion of the business, including increases in rent and storage fees, insurance costs, website and internet costs.

 

Selling and marketing expenses

 

Selling and marketing expenses for the nine months ended September 30, 2017 increased by $4,276,630, or 210%, to $6,308,503 as compared to $2,031,873 for the nine months ended September 30, 2016. The increase was principally the result of key management hires to expand the capabilities of the sales and marketing organization, strategic spending in support of brand and investor awareness and increases in freight out and other costs consistent with the revenue growth. Specifically, our personnel cost increased by $1,226,182 in connection with the hiring of additional sales and marketing. We incurred an increase of $206,906 in stock-based compensation costs and an increase of $462,501 in advertising expenses. Our brand awareness investor and public relations costs increased by $1,429,195 due to new investor relations agreements and increased spending. We incurred an increase of $191,450 in connection with our new product initiatives and ALO Juice development.

 

Interest expense, net

 

Interest expense, net for the nine months ended September 30, 2017 decreased by $662,854, or 68%, to $313,573 as compared to $976,427 for the nine months ended September 30, 2016. Interest expense for the nine months ended September 30, 2017, principally consisted of the amortization of deferred financing costs of $334,739. Interest expense was offset by interest and dividend income on investments of $20,358.

 

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Comparison of the years ended December 31, 2016 and December 31, 2015

 

   For the Years Ended December 31, 
   2016   2015 
         
Net sales  $4,558,030   $1,899,230 
Cost of goods sold   4,239,317    1,556,140 
Gross profit   318,713    343,090 
           
Operating expenses:          
General and administrative expenses   4,958,076    1,946,270 
Selling and marketing expenses   3,149,710    1,449,049 
Total operating expenses   8,107,786    3,395,319 
           
Operating Loss   (7,789,073)   (3,052,229)
           
Other expenses:          
Other expense   (3,593)   (3,327)
Interest expense   (1,066,969)   (124,713)
Loss on inducement   (1,587,954)   - 
           
Net loss  $(10,447,589)  $(3,180,269)

 

Net Sales and Gross Profit

 

Net sales for the year ended December 31, 2016 increased by $2,658,800, or 140%, to $4,558,030 as compared to $1,899,230 for the year ended December 31, 2015. The increase is due to a combination of iced tea brand momentum and an increase in distribution. During the year ended December 31, 2016, our iced tea product distribution expanded into 11 additional states and into over 1,000 new retail outlets. The increase was also bolstered by the sale of the Company’s iced tea product line in gallon containers. Net sales of our iced tea product in gallons during the year ended December 31, 2016 increased by $891,665 and were $1,243,074 as compared to $351,409 for the year ended December 31, 2015. During 2016, we began selling our iced tea and other purchased products in vending machines. Vending machine sales were $185,285 during the 2016 year. During the first quarter of 2016, we began selling a line of aloe juice products realizing year one revenues of $1,054,990.

 

Gross profit decreased by $24,377, or 7%, to $318,713 for the year ended December 31, 2016 from $343,090 for the year ended December 31, 2015. Our gross profit percentage decreased to 7% for the year ended December 31, 2016 as compared to 18% for the year ended December 31, 2015. The decrease in gross profit percentage was due to (a) selling our gallon containers at or below costs to certain distributors in order to acquire more shelf space and consumer visibility for the brand; (b) an increase in costs to produce certain new package offerings for our 20oz product line; and (c) introductory pricing given to new customers on our 20oz product line during the year ended December 31, 2016.

 

General and administrative expenses

 

General and administrative expenses for the year ended December 31, 2016 increased by $3,011,806, or 155%, to $4,958,076 as compared to $1,946,270 for the year ended December 31, 2015. This increase was principally the result of our efforts to build out our management and support team to support our growth, enhance our corporate governance and the effects of bearing public company costs for the full year of 2016. Specifically, our personnel costs increased by approximately $524,000 in connection with hiring our executive chairman, chief financial officer and other supporting personnel. We incurred an increase of approximately $1,013,585 in stock-based compensation costs, an increase of approximately $252,000 in costs in connection with the compensation of our Board of Directors and Advisory Board and an increase of approximately $520,000 in the costs of being a public company, consisting principally of legal, accounting, filing and related costs. The remainder of the cost increases primarily related to costs incurred in support of the expansion of business, including increases in rent and storage fees, insurance costs, website and internet costs and depreciation expense related to the purchase of vending machines in the fourth quarter of 2015.

 

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Selling and marketing expenses

 

Selling and marketing expenses for the year ended December 31, 2016 increased by $1,700,661, or 117%, to $3,149,710 as compared to $1,449,049 for the year ended December 31, 2015. The increase was principally the result of key management hires to expand the capabilities of the sales and marketing organization, strategic spending in support of brand and investor awareness and increases in freight out and other costs consistent with the revenue growth. Specifically, our personnel cost increased by approximately $250,568 in connection with the hiring of our vice president of national sales and marketing and other supporting personnel. We incurred an increase of $85,000 in stock-based compensation costs. Sales commissions paid to brokers increased by approximately $64,000 in support of new sales distribution. Our investor and public relations costs increased by $719,609, consisting of $513,940 in cash costs and $205,669 for stock-based compensation. We incurred an increase of approximately $127,596 in connection with our exploration of opportunities for expansion into the liquor industry. Freight out increased by $293,434 during the year ended December 31, 2016 as compared to the year ended December 31, 2015 due to increased volume as well as increased freight rates resulting from shipments from a storage facility located in Georgia.

 

Interest expense

 

Interest expense for the year ended December 31, 2016 increased by $942,256, or 756%, to $1,066,969 as compared to $124,713 for the year ended December 31, 2015. Interest expense for the year ended December 31, 2016, principally consisted of the amortization of deferred financing costs of $995,550 (including a $408,000 charge to proportionally reduce the deferred financing costs with the reduction of the credit facility) and interest of $72,226 in connection with the Brentwood line of credit.

 

Loss on induced conversion of credit facility and warrants

 

During the year ended December 31, 2016, the Company recorded a non-cash charge of $1,587,954 for an induced conversion of its credit facility and related warrants. No such charge was recorded during the year ended December 31, 2015.

 

Liquidity and Capital Resources

 

Sources of Liquidity and Going Concern

 

The following table provides an overview of our borrowing agreements as of September 30, 2017:

 

 

 

Description of Debt

 

 

 

Holder

  Interest Rate     Balance at
September 30, 2017
 
Line of Credit   Brentwood LIIT Inc.     Prime Plus 7.5 %   $ -  
Automobile loans   Various     3.59% to 10.74 %   $ 19,706  
Equipment Loan Reimbursement Agreement   Magnum Vending Corp.     10.0 %   $ 51,697  

 

Historically, our cash generated from operations has not been sufficient to meet our expenses. We have financed our operations principally through the raising of equity capital, debt and through trade credit with our vendors. Our ability to continue our operations and to pay our obligations when they become due is contingent upon obtaining additional financing. Management’s plans include raising additional funds through equity offerings, debt financings, or other means.

 

We believe that we will be able to raise sufficient additional capital to finance our planned operating activities, although there are no assurances that we will be able to raise such capital on terms acceptable to the Company or at all. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned market development activities, and/or consider reductions in personnel costs or other operating costs. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements filed with the SEC on November 13, 2017, do not include any adjustments that might result from the outcome of these uncertainties.

 

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Line of Credit

 

Brentwood LIIT Corp-Line of Credit

 

On November 23, 2015, we entered into the Credit and Security Agreement (the “Credit Agreement”) with LIBB and Brentwood LIIT, Inc. (“Brentwood”). Brentwood is controlled by a related party, Eric Watson, who beneficially owns approximately 14.4% of our outstanding common stock as of September 30, 2017. The Credit Agreement, which expires on November 23, 2018, provides for a revolving credit facility in an amount of up to $3,500,000, with funding subject to approval by Brentwood. As of September 30, 2017 and December 31, 2016, there was no amount outstanding under the Credit Agreement.

 

UBS Line of Credit

 

On October 27, 2016, we entered into a credit line with UBS (The “UBS Credit Line”). The UBS Credit Line has a borrowing capacity determined by the level of the collateral pledged and bears interest at a floating rate, depending on the time requested for the borrowing. The interest is based on the ICE Swap Rate plus a margin of between 0.40% and 0.70%. As of June 30, 2017, the interest rate on the UBS Credit Line was 3.732 %. The UBS Credit Line, when drawn, is collateralized by certain of our short-term investments. As of September 30, 2017 and December 31, 2016, the outstanding balance on the line of credit was $0 and $1,280,275, respectively. As of September 30, 2017 and December 31, 2016, our borrowing capacity under the UBS Credit line was $0 and $19,725, respectively. At July 21, 2017, the credit line was closed.

 

Magnum Vending Corp

 

On November 23, 2015, we entered into a reimbursement agreement with Magnum Vending Corp. (“Magnum”), an entity managed by Philip Thomas, our Chief Executive Officer and one of our directors, and certain of his family members. In exchange for the exclusive right to stock vending machines owned by Magnum, we agreed to reimburse Magnum for the cost of products to stock the machines and the costs that Magnum incurred to acquire the machines including machines which were purchased with an equipment loan. The total principal amount of the payments underlying the agreement upon inception was $117,917. The reimbursements will be made in 35 monthly payments of principal and interest in the amount of $3,819 with an interest rate of 10%. Upon completion of these payments in October 2018, Magnum will transfer ownership of the vending machines to us. As of September 30, 2017 and December 31, 2016, $51,697 and $76,474, respectively, of principal and interest were outstanding under the agreement.

 

Private Placements

 

In January 2017, we consummated the January 2017 Offering of an aggregate of 376,340 shares of our common stock, through Alexander Capital, L.P., as placement agent, pursuant to the terms of a selling agent agreement, dated January 25, 2017, with the placement agent and subscription agreements with each of the investors in the offering. Of the aggregate number of shares sold, 300,000 shares were sold to the public at a price of $4.00 per share and 76,340 of the shares were sold to our officers and directors at a price of $4.10 per share, the most recent closing bid price of the common stock at the time the officers and directors executed their subscription agreements. The offering generated total net proceeds, after payment of the placement agent fees and other offering expenses, of $1,429,740.

 

In June 2017, we consummated the June 2017 Offering of an aggregate of 256,848 shares of our common stock, through Alexander Capital, L.P., as placement agent, pursuant to subscription agreements with each of the investors in the offering. Of the aggregate number of shares sold, 231,850 shares were sold to the public at a price of $5.00 per share and 24,998 of the shares were sold to our officers and directors at a price of $5.60 per share, the most recent closing bid price of the common stock at the time the officers and directors executed their subscription agreements. The offering generated gross proceeds of $1,299,250 and net proceeds of $1,259,415, after payment of the placement agent fees and other offering expenses.

 

In July 2017, we consummated the July 2017 Offering of an aggregate of 448,160 shares of our common stock, through Alexander Capital, L.P., as placement agent, pursuant to subscription agreements with each of the investors in the offering. The shares were sold at a price of $5.00 per share. Of the shares sold, 200,000 were sold to lead investors who, as a result of purchasing more than $500,000 in shares, each received (i) an additional number of shares of common stock equal to 7% of the total number of shares of common stock purchased by such lead investors in this offering (or an aggregate of 14,000 shares) and (ii) three-year warrants up to that number of shares of common stock equal to 20% of the total number of shares purchased by such lead investors in the offering (or warrants to purchase an aggregate of 40,000 shares). These warrants have an exercise price of $5.50 and are fully vested upon issuance. The sale of common stock generated gross proceeds of $2,240,800 and net proceeds of $2,134,487 after deducting commissions and other offering expenses.

 

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In October, we consummated the October 2017 Offering of an aggregate of 607,500 shares of our common stock in a public offering at a price of $2.05 per share. We received gross proceeds of $1,245,375 and estimated net proceeds of $1,235,375 after deducting commissions and other offering expenses. Each investor in the offering also received a warrant to purchase 50% of the number of shares for which such investor subscribed in the offering (or a total aggregate number of shares underlying such warrants equal to 303,750 shares). The warrants have an exercise price of $2.40 per share, subject to adjustment, and expire one year from the closing of the offering. Prior to October 1, 2017, we received $563,750 from this offering and accordingly, as at September 30, 2017, $563,750 is included in subscriptions payable within the condensed consolidated balance sheets.

 

Cash flows

 

Net cash used in operating activities

 

Net cash used in operating activities was $7,403,966 for the nine months ended September 30, 2017 as compared to net cash used in operating activities of $4,693,408 for the nine months ended September 30, 2016. Cash used in operating activities for the nine months ended September 30, 2017 was primarily the result of a net loss of $11,592,495. The net loss was offset primarily by non-cash charges of $2,664,809, consisting principally of $1,320,512 of stock based compensation, $551,626 of bad debt expense and $334,739 of amortization of deferred financing costs. The cash used in operating activities decreased on account of a $1,847,072 and $941,754 increase in accounts payable and accrued expenses, respectively, and increased due to an increase of $730,956 in accounts receivable. Cash used in operating activities for the nine months ended September 30, 2016 was primarily the result of the net loss of $8,390,264 offset by non-cash charges of $3,715,230.

 

Net cash provided by (used in) investing activities

 

Net cash provided by investing activities was $2,446,069 for the nine months ended September 30, 2017 as compared to net cash provided by investing activities of $2,389,219 for the nine months ended September 30, 2016. Net cash provided by investing activities for the nine months ended September 30, 2017 consisted principally of the proceeds from the sales of short-term investment securities of $2,408,632. Cash used in investing activities for the nine months ended September 30, 2016 resulted primarily from the purchase of short-term investments of $2,507,302.

 

Net cash provided by financing activities

 

Net cash provided by financing activities was $4,138,020 for the nine months ended September 30, 2017 as compared to net cash provided by financing activities of $7,235,048 for the nine months ended September 30, 2016. Cash flows from financing activities were primarily the result of $1,429,740 from the net proceeds of our January 2017 Offering, $1,259,415 from the net proceeds of our June 2017 Offering and $2,134,487 from the net proceeds of our July 2017 Offering. Net cash used in financing activities consisted of repayments of the UBS Line of Credit of $1,280,275. Cash provided by financing activities for the nine months ended September 30, 2016, was primarily due to $5,867,217 in net proceeds from an equity offering.

 

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BUSINESS

 

This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. See “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

 

Overview

 

We are a holding company operating through our wholly-owned subsidiary, LIBB. We are engaged in the production and distribution of premium Non-Alcoholic Ready-to-Drink (“NARTD”) beverages. We are currently organized around our flagship tea product, under the brand Long Island Iced Tea®. The Long Island Iced Tea name for a cocktail originated in Long Island in the 1970’s, and its national recognition is such that it is ranked as the fourth most popular cocktail in restaurants and bars in the U.S. (Source: Nielsen CGA, On-Premise Consumer Survey, 2016). Our premium NARTD tea is made from a proprietary recipe and with quality components.

 

We sell our products to regional retail chains and to a mix of independent mid-to-large range distributors who in turn sell to retail outlets, such as big chain supermarkets, mass merchants, convenience stores, restaurants and hotels, principally in the New York, New Jersey, Connecticut and Pennsylvania markets, with expanding distribution in Florida, Virginia, Massachusetts, New Hampshire, Rhode Island and parts of the Midwest. As of September 30, 2017, our products are available in 20 states and in the Caribbean, Canada and Latin America.

 

Since February 2016, we have been engaged in the aloe juice business, under the brand ALO Juice. ALO Juice is a NARTD functional beverage made from juice derived from the aloe plant known as aloe vera. ALO Juice sources its aloe plants from harvests in Thailand. The plants are exported from there to South Korea where they are processed in a unique whole leaf manner to ensure the nutritional and health benefits are maintained from the plant all the way through to the bottling process.

 

On March 14, 2017, we announced the extension of our brand with the launch of The Original Long Island Brand™ Lemonade. This lemonade is a NARTD functional beverage made from a proprietary recipe with quality components.

 

Our mission is to provide consumers with “better-for-you” premium beverages offered at an affordable price.

 

We aspire to be a market leader in the development of beverages that are convenient and appealing to consumers. There are two major target markets for our beverages: consumers on the go and health conscious consumers. Consumers on the go are families, employees, students and other consumers who lead a busy lifestyle. With increasingly hectic and demanding schedules, there is a need for products that are accessible and readily available. Health conscious consumers 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 carbonated soft drinks (“CSDs”) towards alternative beverages such as iced tea.

 

Industry Opportunity

 

Non-Alcoholic Beverage Market

 

Iced Tea

 

Globally, NARTD tea products are ranked as the 4th largest beverage category, behind carbonated soft drinks, water and dairy. The non-alcohol iced tea global category size is estimated at $55 billion and growing at a 6.6% compound annual growth rate (“CAGR”). (Source: Euromonitor International, “Versatility of RTD Tea Generates Bright Spot in Global Soft Drinks”, May 2014.

 

We have executed a select number of international distribution opportunities – recruiting an international beverage consultant - with a mandate to initially effect distribution and co-pack agreements in Australia and New Zealand. We have also established a footprint in South America with distribution agreements in Costa Rica, Columbia, Honduras and Ecuador, with other relationships pending.

 

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The U.S. non-alcoholic liquid refreshment beverage market consists of a number of different products, and CSDs are the top selling beverage category. However, consumers are increasingly coming to view CSDs (typically caffeinated as well as high in sugar and preservatives) with disfavor. In volume, the CSD category declined 0.6% in 2016, 1.5% in 2015, 1.6% in 2014, 2.3% in 2013 and 1.5% in 2012. (Sources: Euromonitor International, “Carbonates in the US”, February 2017).

 

CSDs have historically dominated the non-alcoholic liquid refreshment beverage market and been primarily controlled by two industry giants, Coca-Cola and PepsiCo. However, a number of beverages began to emerge in the 1990s as alternatives to CSDs as part of a societal shift towards beverages that are perceived to be healthier. The alternative beverage category of the market has resulted in the birth of multiple new product segments that include sports drinks, energy drinks and NARTD teas.

 

According to a 2017 Euromonitor International industry report, the U.S. NARTD tea segment was expected to have $7.1 billion of revenue in 2016, a 7.9% increase from the prior year and an 8.3% annualized growth rate over the last 5 years (2011 – 2016) (Source: Euromonitor International , “RTD Tea in the US”, February 2017). The industry report also forecasted an annual revenue growth rate of 5.3% over the coming five years, with revenues reaching $9.2 billion in 2021.

 

In 2016, consumers showed special interest in healthier versions of NARTD teas, preferring unsweetened teas.

 

RTD Tea Industry Revenue by Type (2017)

 

Black Tea   58.9%
Green and White Tea   24.7%
Herbal Tea   16.4%

 

(Source: IBISWorld Industry Report OD4297, “RTD Tea Production in the US”, October 2017).

 

Lemonade

 

According to IBISWorld, lemonade comprises 8.2% of the $12.0 billion U.S. juice market in 2016. About 6.7 billion liters of juice were consumed in 2015, of which Lemonade sales totaled 451 million liters. (Source: IBISWorld Industry Report 31211c, “Juice Production in the US”, January 2017) According to a Technavio report, the Global lemonade drinks market is expected to grow at a CAGR of over 6% from 2017-2021. (Source: Technavio Market Research Report, “Global Lemonade Drinks Market 2017-2021”, July 2017)

 

ALO Juice

 

The global aloe vera-based drinks market is an expanding category, expected to grow at a CAGR of close to 10% during the forecast period for 2016 through 2020, according to a Technavio report dated November 2016. The Americas is expected to grow at an 11.24% CAGR over the same period. (Source: Technavio Market Research Report, “Aloe Vera-Based Drinks Market”, November 2016)

 

Other Brands

 

With the growing and sustainable distribution base, we now have the opportunity to develop domestic US and international brand portfolios via merger and acquisition opportunities, together with distribution and licensing opportunities. The building blocks we put in place over the last twelve months across the East Coast, including our partnership with Big Geyser, provides us with the infrastructure and management capabilities to pursue these extended goals.

 

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Our Products and Services

 

Long Island Iced Tea® was first launched in the New York metro market by LIBB in July 2011, positioning itself as a premium iced tea beverage offered at an affordable price. We help differentiate ourselves from competitors with a proprietary recipe and quality components. Long Island Iced Tea® is a 100% brewed tea, using black tea leaves and purified water via reverse osmosis. It is gluten-free, free of genetically modified organisms, or “GMOs,” and certified Kosher with no artificial colors or preservatives.

 

Long Island Iced Tea® is primarily produced and bottled in the U.S. Northeast. This production in the Northeast, combined with its “Made in America” tag-line and brand name, all improve its credentials as a part of the local community from which we take our name.

 

We have developed ten flavors of Long Island Iced Tea® in an effort to ensure that our products meet the desired taste preferences of consumers. Regular flavors, which use natural cane sugar as a sweetener, include lemon, peach, raspberry, green tea & honey, half tea & half lemonade, guava, mango, and sweet tea. Diet flavors, which use sucralose (generic Splenda) instead of natural cane sugar as a sweetener, include diet lemon and diet peach. These flavors are currently available in twelve packs of 18oz. polyethylene terephthalate bottles.

 

We have recently transitioned to a new 18oz. bottle and label design for our flagship Long Island Iced Tea® brand, which replaced our 20oz bottle size. The sleeker and slimmer 18oz. bottle design accentuates an authentic and fresh spirit of Long Island Iced Tea® products. The bold and cleanly designed label aligns with our core brand image, clearly emphasizing the brand’s premium ingredients and better-for-you positioning. Both the label and customized bottle cap include informative health cues that include “non-GMO,” “100% raw cane sugar,” “no additives,” and “low calories” for diet flavors.

 

We have also developed three twenty-four pack of sixty calorie flavors that are served in 12oz. bottles. The sixty calorie flavors have reduced sugar content, are caffeine free and include mango, peach, and raspberry. This package was designed to meet certain nutritional guidelines for sales in schools. During May 2015, we launched four flavors, lemon, peach, mango, and green tea and honey, in gallon containers. During February 2016, we also launched sweet tea, which is also served in a gallon container.

 

We have also recently developed The Original Long Island Brand™ Lemonade, which comes in nine real-fruit flavors, and is available in both single 18oz. bottles and 12-packs. Lemonade is offered in flavors including traditional, lime, pink lemonade, kiwi strawberry, cherry, peach, watermelon, wild berries and strawberry.

 

ALO Juice has been distributed in New York City since 2008, and in Florida since 2012. We commenced distribution of ALO Juice in February 2016. It is packed in 0.5 liter and 1.5 liter bottles, with a wide variety of flavors including Original, Mango, Pomegranate, Pineapple, Coconut and Raspberry. Aloe vera juice contains nutrients which include vitamins A, C, E, and B12, as well as minerals like potassium, zinc, and magnesium. It also provides antioxidants, helps to balance metabolism, and supports normal circulation and blood pressure.

 

Our Competitive Strengths

 

We believe that a differentiated brand will be a key competitive strength in the NARTD tea segment. Key points of differentiation for Long Island Iced Tea® and Long Island Brand™ Lemonade include:

 

A highly experienced beverage management team, supported by a strong Board of Directors and strategic advisors;
   
Ownership of the “Long Island Iced Tea” trademark in the United States in the non-alcoholic beverage segment, which carries immediate brand recognition;
   

A distribution partnership in the New York region with Big Geyser, the largest independent non-alcoholic beverage distributor in metro New York that has in excess of 25,000 doors;

 

Strong and growing distribution in the Northeast (company’s origin), with expanding distribution in the Midwest and South;
   
Offered at an affordable price;
   
A widely recognized US brand name, reinforced with “Made in America” positioning, highly relevant to the three largest global RTD tea markets – USA, China and Japan;

 

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The use of non-GMO ingredients; and
   
A product that meets shifting consumer demands, our flagship brands being corn free, hormone/antibiotic free, gluten free, natural and having no artificial color or flavor.

 

The NARTD beverage market is a crowded space and, as a result, we believe in pricing our products competitively. We highlight to consumers our use of premium ingredients and our affordable price. The suggested retail price for a 18oz. bottle of Long Island Iced Tea® is $1.00 to $1.50 and the suggested retail price of The Original Long Island Brand™ Lemonade is $1.25 to $1.79 per 18oz bottle. ALO Juice has a suggested retail price of $1.49 to $1.79 for the 500 ml bottle and $2.39 to $2.79 for the 1.5 liter bottle. Management has set pricing levels to reflect current pricing dynamics in the industry. There has been downward pressure on prices, which management believes is caused by the entrance of major multinational beverage corporations into the alternative beverage category. This is starting to lead towards industry consolidation, in what is currently considered a somewhat fragmented marketplace.

 

Our Business Strategies

 

We are seeking to organically grow our NARTD tea and related product sales by, capitalizing on an iconic name with unique brand awareness to create familiar and easily recognizable beverages.

 

We intend to increase our market share in our existing geographic markets and expand into additional geographic markets in the U.S. We have established distribution in a number of small international markets and are exploring distribution in additional international markets on a highly selective and limited basis, which may include royalty and licensing agreements. As discussed below in “Our Customers ,” we generally focus our sales efforts on approaching beverage distributors and taking advantage of their unique positioning in the retail industry. However, a portion of our sales efforts are also dedicated to direct sales to retailers, because some wholesale chains request direct shipments from the product supplier. In addition, we are exploring several new sales channels. We currently are conducting a small scale business trial in which we sell our beverage product alongside other snacks in vending machines. We also sell our twelve ounce lower calorie products in schools, in some cases through sales to purchasing cooperatives that represent multiple school districts, but also via the vending machine business trial.

 

In March 2017, we entered into a long-term strategic distribution agreement with Big Geyser, a large independent non-alcoholic beverage distributor in metro New York, pursuant to which Big Geyser became the exclusive distributor of our iced tea bottle products. The agreement covers retail locations in the New York City metro region, including the five boroughs of New York City, Long Island, Westchester and Putnam County. This distribution coverage has the potential to significantly increase our distribution footprint and allow us to streamline our business and brings additional focus to building our brand. We are committed to building this relationship, including the recruitment of Robert Stefanizzi and a team of experienced industry professionals focused on expanding our products into Big Geyser’s distribution network.

 

We continually seek to better develop emerging markets, as well as expand our overall geographic footprint. We have entered into new business arrangements involving international specialists contracted to (i) identify new market opportunities and (ii) assist in the overall management of our international expansion efforts. During 2017, we announced the appointment of a New Zealand based distributor and an Australian based distributor, as well as an Australian based co-packer with capability to produce products for Australasia and Asia. We have also focused on the development of markets in South America, and have announced expansion into Costa Rica, Columbia, Honduras, Ecuador and other Latin American countries. We have worked alongside existing distributor partnerships in Puerto Rico, Canada and South Korea to further expand distribution points throughout their respective markets.

 

Our strategy for ALO Juice includes increasing brand support through our existing sales and marketing team, ultimately accelerating points of distribution throughout current (and future) distributor and retail partnerships alongside our flagship iced tea and lemonade products.

 

We are currently securing ownership of the “Long Island Iced Tea” trademark in selective international jurisdictions via the Madrid protocol. Domestically, we are building our brand primarily by establishing comprehensive marketing plans that include but are not limited to trade marketing, customer appreciation programs, social media, pricing promotions and demos via brand ambassadors.

 

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In the past twelve months, we have secured two material brand building, awareness and trial mechanics through the sponsorships of 1) Nassau Veterans Memorial Coliseum and 2) Barclays Center. These properties reinforce brand ownership in our key New York markets and promote trial and adoption across key demographics.

 

We also use co-op advertising (advertisements by retailers that include the specific mention of manufacturers, who, in turn, repay the retailers for all or part of the cost of the advertisement) and special promotions, together with its retail partners, so as to complement other marketing efforts towards brand awareness.

 

We also seek to expand our product line. From time to time, we explore and test market potential of new NARTD products that may, in the future, contribute to our operating performance. We expect that the introduction of The Original Long Island Brand™ Lemonade and growth of ALO Juice will be able to attract a new market segment of beverage drinkers.

 

Manufacturing and Raw Materials

 

Long Island Iced Tea® and Long Island Brand™ Lemonade are currently produced by Brooklyn Bottling Group, Wayne County Foods, Inc., Polar Corp., and LiDestri Spirits, all of which are established co-packing companies with reputable quality control. We intend to identify additional co-packers in the U.S. and other countries to support the continued growth of the brand. ALO Juice is purchased as a finished product from a third party supplier in South Korea.

 

The principal raw materials we use in our iced tea and lemonade business are bottles, caps, labels, packaging materials, tea essence and tea base, lemonade base, sugar, natural flavors and other sweeteners, juice, electricity, fuel and water. Our principal suppliers for the year ended December 31, 2016, were Zuckerman-Honickman, Inc. (bottles) and Allen Flavors, Inc. (natural flavors) who, together with Lidestri Spirits (copacker), accounted for 46% of our purchases of inventory and copacking fees. In addition, 23% of our purchases were related to the purchase of finished bottled ALO Juice, which is purchased from suppliers located in South Korea. Our principal iced tea suppliers for the year ended December 31, 2015 were Zuckerman-Honickman, Inc. (bottles), Dominos Food, Inc. (sugar) and Allen Flavors, Inc. (natural flavors) who, together with Union Beverage Packers LLC (copacker), accounted for 80% of our purchases of raw materials inventory and copacking fees.

 

Our relationships with our suppliers and co-packers are typically governed by short-term purchase orders or similar arrangements. We do not have any material contracts or other material arrangements with these parties and presently do not mitigate our exposure to volatility in the prices of raw materials or co-packing services through the use of forward contracts, pricing agreements or other hedging arrangements. Accordingly, we are subject to fluctuations in the costs of our raw materials and co-packing services.

 

Furthermore, some of our raw materials, such as bottles, caps, labels, tea essence and tea base, sugar, natural flavors and other sweeteners, and juice, are available from only a few suppliers. As a result, we may be subject to substantial increases in prices or shortages of raw materials, if the suppliers are unable or unwilling to meet our requirements.

 

Our Customers

 

We sell our products to a mix of independent mid-to-large size beverage distributors who in turn sell to retail outlets, such as big chain supermarkets, mass merchants, convenience stores, restaurants and hotels principally in the New York, New Jersey, Connecticut and Pennsylvania markets. We have also begun expansion into other geographic markets, such as Florida, Virginia, Massachusetts, New Hampshire, Nevada, Rhode Island, North Carolina, South Carolina and parts of the Midwest. Our products are currently available in twenty states and in the Caribbean, Canada and Latin America as of September 30, 2017. While we primarily sell our products indirectly through distributors, at times we sell directly to the retail outlets and we may sell to certain retail outlets both directly and indirectly through distributors. We also sell our products directly to the distribution facilities of some of our retailers and through “road shows,” which are temporary installations at retail outlets staffed by our employees or contractors.

 

For the nine months ended September 30, 2017, two customers, Garden Foods and Big Geyser accounted for 21% and 12% of our net sales, respectively. For the year ended December 31, 2016, our top customers, Seba Distribution LLC and Garden Foods, accounted for 20% and 11% of the Company’s net sales, respectively. For the year ended December 31, 2015, one customer, Wakefern Food Corp., accounted for 10% of net sales.

 

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Our sales are typically governed by short-term purchase orders. We do not have any material contracts or other material arrangements with our customers or distributors and do not obtain commitments from them 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.

 

Management

 

Our management team consists of persons with substantial experience in the beverage industry. Philip Thomas, our Chief Executive Officer and LIBB’s co-founder, has over 20 years of beverage experience. Mr. Thomas served as our Chairman of the Board from May 2015 until June 2016, and has been Chief Executive Officer since the consummation of the business. Julian Davidson, our Executive Chairman, has over 25 years of experience in the beverage industry, including most recently serving as Chief Executive Officer of Independent Liquor NZ’s businesses in New Zealand, the U.S. and Canada. Independent Liquor NZ is a manufacturer and distributor of pre-mixed ARTD beverages, as well as having beer, spirit and cider portfolios. Jeff David, our Controller, has over 12 years of accounting experience with a broad background in controllership, full-cycle accounting, auditing, and corporate taxation. Robert Stefanizzi, our Vice President of the New York Region, has nearly 20 years of beverage industry experience in the New York metro region, most recently as Director of Sales for Venturing and Emerging Brands at Coca-Cola and prior to that as a Regional Sales Manager at Honest Tea. We intend to expand our current management and recruit other skilled officers and employees with experience relevant to our business focus as needed

 

Operations and Assets

 

We currently use co-packing companies, Brooklyn Bottling Group, Wayne County Foods, Inc., Polar Corp., and LiDestri Spirits to manufacture Long Island Iced Tea® and Long Island Brand™ Lemonade. The product is shipped directly to distributors or retailers as well as to our warehouse in Farmingdale, NY or our other storage facilities prior to delivery to sales partners. Principal assets include vehicles to support the marketing of the brand and to transport the product, as well as storage equipment for the warehouse. Our principal assets also include display equipment such as vending machines, refrigerators and racks. This equipment is strategically placed at retail locations in order to market our product line.

 

We purchase our aloe juice product through a third party supplier in its finished form. There are no current operations or assets; however, after the close of the asset purchase agreement we will acquire only the intellectual property to produce ALO Juice including tradenames, formulas, and recipes.

 

In September 2017, the Company entered into an exclusive perpetual licensing agreement granting the Company the worldwide rights to produce, distribute and sell the ALO Juice brand. As compensation for these rights, the Company has agreed to pay a 7.0% royalty on the Company’s gross sales of ALO Juice delivered to the Company’s customers.

 

Seasonality

 

The beverage market is subject to some seasonal variations. As the iced tea beverage segment, including Long Island Iced Tea®, experiences its highest levels of demand during the warm spring and summer months, cold or rainy weather during this time may have a short-term impact on customer demand and therefore result in lower sales.

 

Competition

 

The beverage industry is extremely competitive. Long Island Iced Tea® and Long Island Brand™ Lemonade are competing with a wide range of beverages that are produced by a large number of manufacturers. Most of these brands have enjoyed broad public recognition for many years, accomplished through continuous and well-funded marketing campaigns. We will compete with all types of beverages, both CSDs and non-CSDs, facing higher competition from direct product competitors in the NARTD tea and lemonade market. Key direct competitors are Arizona Beverage Company, Unilever, Dr. Pepper Snapple Group, Inc., Nestle SA and The Coca-Cola Company. In order to be able to compete successfully in the industry, we have to distinguish our products in price and in taste and flavor, and offer attractive promotions to customers and appealing packaging. Moreover, we will have to well position the brand with targeted sales and marketing campaigns.

 

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The aloe juice business is a fast growing industry as consumer demand grows for a “better-for-you” beverage that has healthy benefits and is great tasting. The aloe juice segment is projected to experience high growth worldwide for the foreseeable future and there will be opportunities for new entrances in the market. The presence of small and large vendors makes the global aloe vera-based drinks market extremely fragmented. Intense competition prevails in the market in terms of price, quality, innovation, reputation, and distribution. Key direct competitors that provide a high quality aloe juice product are OKF Aloe King, Alo Farms, Forever Living Products, and Houssy Global.

 

Intellectual Property

 

“Long Island Iced Tea” is a trademark of ours. We currently have federal registration of the trademark “Long Island Iced Tea” and are pursuing such registration of the trademark “The Original Long Island Brand.” We intend to seek registration of such trademarks in other countries as well. In addition, we are seeking or plan to seek a number of other trademarks for tag lines and product designs.

 

We filed applications with the USPTO for the registration of the trademark “Long Island Brand Iced Tea” on August 28, 2012 and subsequently for the registration of the trademark “Long Island Iced Tea” on July 23, 2013. Both applications encountered resistance to registration as a result of the existence of the mark “Long Island” for “iced tea.” We determined that the mark “Long Island” for “iced tea” was abandoned. As a result we filed a petition to cancel the registration on this ground. In January 2015, the petition was granted and the mark was cancelled. Accordingly, we petitioned for the mark “Long Island Iced Tea” to be placed on the supplemental register. On April 19, 2016, the USPTO registered the mark “Long Island Iced Tea” (Registration No. 4,943,056) on the supplemental register. Registration on the supplemental register allows the use of the “®” symbol, blocks later filed applications for confusingly similar marks, and allows us to sue infringers in federal court which has well-settled case law and standards. Notwithstanding the foregoing, the supplemental register does not provide all the protection of a registration on the principal register. At this time, the mark is not “incontestable” and we may be open to claims of others contesting the trademark.

 

In addition, we have filed trademark applications for “The Original Long Island Brand” as a standard character mark and as a stylized mark, which are pending before the USPTO. In each case, the application is for use of the trademark with iced tea, tea based products, juices, water, beverages and other similar products. “The Original Long Island Brand” standard character trademark has been in use in commerce by us since at least as early as February 29, 2012. We also plan to file for stylized marks protecting certain other tag lines and product designs. With respect to the pending trademark applications for “The Original Long Island Brand” (standard character mark and stylized mark), the USPTO has made an initial determination that both marks are geographically descriptive. This determination is refutable and the USPTO has afforded the company the opportunity to produce evidence to establish that the marks have become distinctive of the goods in commerce. Similar issues, or other issues, also may arise in connection with the other marks for which we are seeking registration or intend to seek registration. Registration of these marks will allow us to utilize the “®” symbol to notify others that our marks are federally registered and allow us to enforce these marks in federal court, among other benefits. There can be no assurance, however, that the USPTO will approve these applications.

 

Our intellectual property is protected through the acquisition of registered and unregistered trademarks as described above, the acquisition of patents, the maintenance of trade secrets, the development of trade dress, and, where appropriate, litigation against those who are, in our opinion, infringing our intellectual property rights. We intend to aggressively assert our rights under trade secret, unfair competition, trademark, copyright and other similar laws to protect our intellectual property, including product design, product research and concepts and trademarks, against any infringer. Although any assertion of our rights could result in a substantial cost to us, and diversion of our efforts, management believes that the protection of our intellectual property will be a key component of our operating strategy. Notwithstanding the foregoing, there can be no assurance that the trademarks described above or our other intellectual property rights will adequately protect information that we deem to be proprietary.

 

In an effort to further develop our branding strategy, we acquired the uniform resource locator (URL) www.longislandicedtea.com.

 

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Environmental and Other Regulations

 

The conduct of our businesses, and the production, distribution, sale, advertising, labeling, safety, transportation and use of our products, are and will be subject to various laws and regulations administered by federal, state and local governmental agencies in the U.S., as well as to foreign laws and regulations administered by government entities and agencies in markets where we may operate and sell products.

 

In the U.S., we are or may be required to comply with federal laws, such as the Food, Drug and Cosmetic Act, the Occupational Safety and Health Act, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, laws governing equal employment opportunity, customs and foreign trade laws and regulations, laws regulating the sales of products in schools, and various other federal statutes and regulations. We will rely on legal and operational compliance programs, as well as local counsel, to guide our businesses in complying with applicable laws and regulations of the jurisdictions in which we do business. Our third-party co-manufacturer is also required to comply with Food and Drug Administration requirements for manufacturing of our product.

 

We also may in the future be affected by other existing, proposed and potential future regulations or regulatory actions, including those described below, any of which could adversely affect our business, financial condition and results of operations. Changes in government regulation, or failure to comply with existing regulations, could adversely affect our business. Public health officials and health advocates are increasingly focused on the public health consequences associated with obesity, especially as the disease affects children, and are seeking legislative change to reduce the consumption of sweetened beverages. There also has been an increased focus on caffeine content in beverages.

 

Legislation has been enacted in certain U.S. states in which our products may be sold that requires collection and recycling of containers or that prohibits the sale of our beverages in certain non-refillable containers unless a deposit or other fee is charged. It is possible that similar or more restrictive legal requirements may be proposed or enacted in the future.

 

We do not anticipate at this time that the cost of compliance with U.S. and foreign laws will have a material financial impact on our operations, business or financial condition, but there are no guarantees that new regulatory and tariff legislation may not have a material negative effect on our business in the future.

 

Research and Development

 

We have incurred approximately $47,067 and $13,333 to research opportunities related to new product initiatives. These costs were reflected in research and development expense for the years ended December 31, 2016 and 2015, respectively.

 

Employees

 

At September 30, 2017, we had 25 full time employees and one part-time employee. We also engaged the services of independent contractors to assist our management team in developing our product offerings.

 

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MANAGEMENT

 

The Company’s directors and executive officers are as follows:

 

Name   Age   Position
Julian Davidson   52   Executive Chairman
Philip J. Thomas   41   Chief Executive Officer and Director
Tom Cardella   62   Director
Edward Hanson   41   Director
Richard Y. Roberts   65   Director

 

 

Julian Davidson has been the Company’s Executive Chairman since June 2016 and a consultant to the Company since June 2015. Mr. Davidson has also served on the board of Smartfoods Limited, a privately held food manufacturing, marketing and distribution company, since May 2015. From October 2011 to June 2015, Mr. Davidson served on the board of the Lantern Hotel Group, an Australian Stock Exchange-listed company. From April 2009 to December 2014, Mr. Davidson was Chief Executive Officer of Independent Liquor (NZ) Limited. From February 2007 to April 2009, Mr. Davidson was Chief Financial Officer of Independent Liquor Group. From September 2006 to January 2007, Mr. Davidson acted as a consultant to a consortium of private equity investors who acquired Independent Liquor (NZ) Limited. From April 2005 to October 2006, Mr. Davidson formed and ran Consolidated Hotels and Taverns Limited, an investment company which purchased and operated a portfolio of hotels and taverns. From 1991 to 2005, Mr. Davidson held senior management and leadership roles in Lion Nathan, Australasia’s largest brewer, including as Managing Director of Lion Breweries (NZ) Limited from January 2002 to March 2005. Commencing September 2001, Mr. Davidson completed three months at Harvard Business School, graduating with a Program for Management Development (PMD) in December 2011. From March 1998 to September 2001, Mr. Davidson served as Managing Director of the Tooheys Brewery. From September 1996 to March 1998, Mr. Davidson acted as Finance Director for Lion Nathan Australia. From August 1995 to September 1996, Mr. Davidson worked at Pepsi Cola Bottlers Australia/New Zealand (a Lion Nathan/Pepsi Cola International JV) as Finance Director. From August 1992 to August 1995, he served as the Finance Director of the Swan Brewery in Western Australia. From August 1991 to August 1992, Mr. Davidson was the Lion Nathan Group Internal Audit Manager. From 1985 to 1991, Mr. Davidson worked as an auditor with Deloitte. Mr. Davidson’s tertiary education was at the Auckland Technical Institute (1983 – 1986). Mr. Davidson is a Chartered Accountant (NZ). The Company believes Mr. Davidson’s contacts and past business experience in the U.S. and global beverage industry make him well suited to serve as a member of the Board.

 

Philip J. Thomas has served as the Company’s Chief Executive Officer and as member of the Board since the consummation of the Business Combination on May 27, 2015. Mr. Thomas also served as the Company’s Chairman of the Board from May 2015 until June 2016. Mr. Thomas also has served as the Chief Executive Officer of LIBB since its formation in February 2011 and previously served as the Managing Member and a member of the board of managers of LIBB from February 2011 until May 2015. Since 2005, Mr. Thomas has also served as President of Capital Link LLC, a nationally recognized ATM processing network that he founded. Capital Link partnered with, among others, WSFS Bank (NASAQ: WSFS), Cash Connect, RBSWorldPay (RBS) and Switch Commerce, and these parties, in the aggregate, fund over 13,000 ATMs in all 50 states with over $8 billion annually. From 2008 to November 2010, he served as Chief Executive Officer of KarbonEx Corp, a company he founded dedicated to creating innovative, market driven solutions to address climate change and resolve the way businesses impact the environment. Prior to this, Mr. Thomas revitalized his family’s 45 year old food and beverage distribution business, Magnum Enterprises, by creating strategic partnerships with Coca-Cola, Vitamin Water and Kelloggs. Mr. Thomas began his career in 1998 while attending college at James Madison University where he created Highlawn Restaurant & Lounge, which he sold in 2001. Mr. Thomas received a B.S. from James Madison University, where he was a Division I GTE scholar athlete. The Company believes Mr. Thomas’ business experience in the beverage industry makes him well suited to serve as a member of the Board.

 

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Tom Cardella has served as a member of the Board since April 2016. Mr. Cardella is the founder of Cardella & Associates LLC and is a beverage industry consultant. Prior to founding Cardella & Associates in February 2015, Mr. Cardella was the President and Chief Executive Officer of Tenth and Blake Beer Company, a division of MillerCoors, from June 2010 to January 2015. He also served as President Eastern Division for MillerCoors from June 2008 to June 2010, where he was responsible for all commercial operations in the eastern half of the United States. Prior to the merger with Coors, Mr. Cardella was Executive Vice President of Sales and Distribution for Miller Brewing Company from May 2006 to June 2008. From August 2005 through April 2006, he held the position of Senior Vice President of Market Development and Import Brands with Miller. Prior to rejoining the Miller Brewing Company in August 2005, Mr. Cardella spent nearly a decade at InBev where he held several senior-level positions, including U.S. Vice President of Sales from September 2004 through August 2005, Chief Executive Officer of Beck’s North America from June 2003 through August 2004, Vice President of Strategy for FEMSA Cerveza in Monterey, Mexico (joint venture of InBev/Femsa) from January 2001 through May 2003, and Vice President of Marketing at Labatt USA from January 1996 through December 2000. Mr. Cardella spent the earlier years of his career with Miller Brewing Co. from 1978 through 1995 in various sales and marketing positions. Mr. Cardella has served on the board of directors of the Green Bay Packers since July 2010, the United Way of Greater Milwaukee since March 2010 and the Marcus Center for Performing Arts since July 2012. He also has served on the board of directors for the North American Brewing Company (parent company is FIFCO, San Jose, Costa Rica) since January 2016. Mr. Cardella received a B.A. from the State University of New York College at Geneseo and completed the Advanced Management Program at Harvard Business School in 2000. The Company believes Mr. Cardella’s contacts and past business experience in the beverage industry make him well suited to serve as a member of the Board.

 

Edward Hanson has been a member of the Board since the consummation of the Business Combination on May 27, 2015. Mr. Hanson also has been a member of Cullen’s board of directors since October 2009. Mr. Hanson has served as a principal of Global Partners Fund, a private equity fund investing in asset backed businesses, since 2009. Prior to this, he was a director of Babcock & Brown (UK) Ltd. Babcock & Brown was a principal investment firm headquartered in Sydney and Mr. Hanson worked in the London office from 1997 to 2009. He focused on Private Equity and Real Estate. Mr. Hanson received a Bachelor of Commerce from the University of Auckland in New Zealand. The Company believes Mr. Hanson’s business experience and contacts and relationships make him well suited to serve as a member of the Board.

 

Richard Y. Roberts has been a member of the Board since the consummation of the Business Combination on May 27, 2015. Mr. Roberts also has been a member of Cullen’s board of directors since October 2009. In March 2006, Mr. Roberts co-founded a regulatory/legislative consulting firm, Roberts, Raheb & Gradler LLC. He was a partner with Thelen Reid & Priest LLP, a national law firm, from January 1997 to March 2006. From August 1995 to January 1997, Mr. Roberts was a consultant at Princeton Venture Research, Inc., a private consulting firm. From 1990 to 1995, Mr. Roberts was a commissioner of the SEC, and, in this capacity, was actively involved in, has written about or has testified on, a wide range of subjects affecting the capital markets. Since leaving the SEC, Mr. Roberts has been a frequent media commentator and writer on various securities public policy issues and has assisted the Governments of Romania and Ukraine in the development of a securities market. Mr. Roberts was a director of Red Mountain Resources, Inc., an oil and natural gas exploration public company, from October 2011 until February 2016. He was a director of Nyfix, Inc. from September 2005 to December 2009, Endeavor Acquisition Corp. from July 2005 to December 2007, a director of Victory Acquisition Corp. from January 2007 to April 2009 and a director of Triplecrown from June 2007 to October 2009. From 1987 to 1990, he was the chief of staff for Senator Richard Shelby. He is a member of the Alabama Bar and the District of Columbia Bar. Mr. Roberts is a member of the Advisory Board of Securities Regulation & Law Reports, of the Advisory Board of the International Journal of Disclosure and Governance, and of the Editorial Board of the Municipal Finance Journal. Mr. Roberts also previously served as a member of the District 10 Regional Consultative Committee of the Financial Industry Regulatory Authority, the Market Regulation Advisory Board of the FINRA, and the Legal Advisory Board of the FINRA. Mr. Roberts received a B.E.E. from Auburn University in 1973, a J.D. from the University of Alabama School of Law in 1976, and a Master of Laws from the George Washington University Law Center in 1981. The Company believes Mr. Roberts’ contacts and past business experience, including at the SEC, make him well suited to serve as a member of the Board.

 

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Family Relationships

 

There are no family relationships among any of the Company’s directors or executive officers.

 

Leadership Structure

 

The Board is divided into two classes, Class 1 and Class 2. The Class 1 directors will hold office until the annual meeting of directors to be held in 2018 and the Class 2 directors will hold office until the annual meeting of directors to be held in 2017. Thereafter, each director holds office until the second succeeding annual meeting of stockholders after his or her election, or until his or her death, resignation, removal or the earlier termination of his or her term of office. Edward Hanson and Richard Y. Roberts are the Class 1 directors and Julian Davidson, Philip Thomas and Tom Cardella are the Class 2 directors.

 

The Board has determined to keep the positions of chairman of the board and principal executive officer separate at this time. This permits the Company’s principal executive officer to concentrate his efforts on managing the Company’s business operations and development. This also allows the Company to maintain an independent chairman of the board who oversees, among other things, communications and relations between the Board and senior management, consideration by the Board of the Company’s strategies and policies and evaluation by the Board of the Company’s principal executive officer.

 

Independence of Directors

 

The Company’s common stock is listed on the Nasdaq Capital Market and the Company adheres to the Nasdaq listing standards in determining whether a director is independent. The Board consults with its counsel to ensure that its determinations are consistent with those rules and all relevant securities and other laws and regulations regarding the independence of directors. Nasdaq requires that a majority of the Board must be composed of “independent directors,” which is defined generally as a person other than an officer of a company, who does not have a relationship with the company that would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Consistent with these considerations, the Company has determined that each of Messrs. Hanson, Roberts and Cardella and Ms. Kennedy is an independent director.

 

Board Role in Risk Oversight

 

The Board’s primary function is one of oversight. The Board as a whole works with the Company’s management team to promote and cultivate a corporate environment that incorporates enterprise-wide risk management into strategy and operations. Management periodically reports to the Board about the identification, assessment and management of critical risks and management’s risk mitigation strategies. Each committee of the Board is responsible for the evaluation of elements of risk management based on the committee’s expertise and applicable regulatory requirements. In evaluating risk, the Board and its committees consider whether the Company’s programs adequately identify material risks in a timely manner and implement appropriately responsive risk management strategies throughout the organization. The audit committee focuses on assessing and mitigating financial risk, including risk related to internal controls, and receives at least quarterly reports from management on identified risk areas. In setting compensation, the compensation committee strives to create incentives that encourage behavior consistent with the Company’s business strategy, without encouraging undue risk-taking. The nominating committee considers areas of potential risk within corporate governance and compliance, such as management succession. Each of the committees reports regularly to the Board as a whole as to their findings with respect to the risks they are charged with assessing.

 

Board Meetings and Committees

 

The Board has three separately standing committees: the audit committee, the compensation committee and the nominating committee. Each committee is composed entirely of independent directors as determined in accordance with the rules of Nasdaq for directors generally, and where applicable, with the rules of Nasdaq for such committee. In addition, each committee has a written charter, a copy of which is available free of charge on the Company’s website at http://investors.longislandicedtea.com/charters.

 

Audit Committee

 

The audit committee consists of Tom Cardella, Edward Hanson and Richard Y. Roberts, each of whom is “independent” as defined in Rule 10A-3 of the Exchange Act and the Nasdaq listing standards, with Mr. Hanson serving as chairman. The audit committee’s duties, which are specified in the audit committee charter, include, but are not limited to:

 

  reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the Board whether the audited financial statements should be included in the Form 10-K;
     
  discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements;

 

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  discussing with management major risk assessment and risk management policies;
     
  monitoring the independence of the independent auditor;
     
  verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;
     
  inquiring and discussing with management the Company’s compliance with applicable laws and regulations;

 

  pre-approving all audit services and permitted non-audit services to be performed by the independent auditor, including the fees and terms of the services to be performed;
     
  appointing or replacing the independent auditor;
     
  determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work;
     
  establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or reports which raise material issues regarding the Company’s financial statements or accounting policies; and
     
  reviewing and approving any related party transactions the Company may enter into. The audit committee will consider all relevant factors when determining whether to approve a related party transaction, including whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction.

 

Financial Experts on Audit Committee

 

The audit committee will at all times be composed exclusively of “independent directors” who are “financially literate” as defined under the Nasdaq listing standards. The definition of “financially literate” generally means being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement. The Company has determined that Edward Hanson qualifies as an “audit committee financial expert,” as defined under rules and regulations of the SEC.

 

Compensation Committee

 

The compensation committee consists of Tom Cardella and Richard Y. Roberts, each of whom is an independent director, with Mr. Cardella serving as chairman. The principal functions of the compensation committee are:

 

  evaluating the performance of the Company’s officers,
     
  reviewing any compensation payable to the Company’s directors and officers,
     
  preparing compensation committee reports, and
     
 

administering the issuance of any common stock or other equity awards granted to the Company’s officers and directors.

 

The compensation committee makes all decisions regarding executive officer compensation. The compensation committee periodically reviews the elements of compensation for the executive officers and, subject to any existing employment agreements, sets each element of compensation for the Chief Executive Officer and the other executive officers, including annual base salary, annual incentive bonus and equity compensation. The compensation committee also periodically reviews the terms of employment agreements with the executive officers, including in connection with any new hire or the expiration of any existing employment agreements. The compensation committee will consider the recommendations of the Executive Chairman and the Chief Executive Officer when determining compensation for the other executive officers. Executive officers do not determine any element or component of their own pay package or total compensation amount. The Chief Executive Officer has no role in determining and is not present for any discussions regarding his own compensation.

 

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The compensation committee also reviews and approves the Company’s compensation plans, policies and programs and administers the Company’s equity incentive plans. In addition, the Executive Chairman, the Chief Executive Officer and other members of management make recommendations to the compensation committee with regard to overall pay strategy including program designs, annual incentive design, and long-term incentive plan design for all employees. Management from time to time provides the compensation committee with market information and relevant data analysis as requested.

 

The compensation committee retains sole authority to engage compensation consultants, including determining the nature and scope of services and approving the amount of compensation for those services, and legal counsel or other advisors. The compensation committee assesses the independence of any consultants pursuant to the rules and regulations of the SEC and the listing standards of Nasdaq. The Company will provide for appropriate funding, as determined by the compensation committee, for payment of any such investigations or studies and the compensation to any consulting firm, legal counsel or other advisors retained by the compensation committee. The Company engaged a compensation consultant as part of its development of an overall compensation strategy and establishment of individual compensation arrangements during the fiscal year ended December 31, 2016.

 

Nominating Committee

 

The nominating committee consists of Edward Hanson, who is an independent director under the Nasdaq listing standards. The nominating committee is responsible for overseeing the selection of persons to be nominated to serve on the Board. The nominating committee will consider persons identified by its members, management, stockholders and others.

 

The guidelines for selecting nominees, which are specified in the nominating committee charter, generally provide that persons to be nominated:

 

  should have demonstrated notable or significant achievements in business, education or public service;
     
 

should possess the requisite intelligence, education and experience to make a significant contribution to the Board and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and

     
 

should have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests of the stockholders.

 

The nominating committee will consider a number of qualifications relating to management and leadership experience, background and integrity and professionalism in evaluating a person’s candidacy for membership on the Board. The nominating committee may require certain skills or attributes, such as financial or accounting experience, to meet specific Board needs that arise from time to time. Though the Board does not have specific guidelines on diversity, it is one of many criteria considered by the Board when evaluating candidates. The nominating committee does not distinguish among nominees recommended by stockholders and other persons. The Company does not pay any fee to or otherwise engage any third party or parties to identify or evaluate or assist in identifying or evaluating potential nominees.

 

The nominating committee does not have a written policy or formal procedural requirements for stockholders to submit recommendations for director nominations. However, the nominating committee will consider recommendations from stockholders. Stockholders should communicate nominee suggestions directly to the nominating committee and accompany the recommendation with biographical details and a statement of support for the nominee. The suggested nominee must also provide a statement of consent to being considered for nomination. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

 

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In addition, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”), dated as of December 31, 2014 and amended as of April 23, 2015, by and among the Company, Cullen, Cullen Merger Sub, Inc., LIBB Acquisition Sub, LLC, LIBB and certain of the former members of LIBB, the parties to the agreement have agreed to take all necessary action so that Messrs. Thomas, Hanson and Roberts are elected as directors through 2018.

 

Strategy Committee

 

The strategy committee, which was formed during 2017, consists of Tom Cardella, Julian Davidson and Philip Thomas. The strategy committee is responsible for reviewing the overall strategic and financial plans of the Company.

 

Advisors to the Strategy Committee

 

The strategy committee has engaged advisors to assist its management in exploring business opportunities. These advisors regularly provide the Company with advice on product development and business opportunities. The advisors have entered into confidentiality agreements with the Company and retain no intellectual property rights to the Company’s products. They are compensated for their time through awards of stock and annual cash fees. The current advisors are:

 

John Carson. Mr. Carson is Chairman of the Board of Intercontinental Beverage Capital Inc. (“IBC “). He is former Chairman, Chief Executive Officer and President of several leading beverage companies including Marbo, Inc. and Triarc Beverages, both private equity backed corporations. As Chairman of Triarc Beverages (RC Cola), he led the acquisition and integration of Snapple Beverages and expanded business internationally by leading negotiations in China, Japan, Mexico, South America, Russia and Poland. Mr. Carson led the sale of the entire beverage portfolio of Triarc to Cadbury Schweppes, generating a significant return for investors. He is former President of Cadbury Schweppes North America where he led the expansion of the Schweppes brand beyond mixers and into adult soft drinks. He also led the expansion of the Tampico brand throughout new markets, including Mexico, Brazil and the emerging U.S. Hispanic and African American markets. Mr. Carson is a Board Member of the National Soft Drink Association and Director of Water Source Inc.

 

Dan Holland. Mr. Holland is the former Chief Executive Officer of XXIV Karat Wines, which was founded in 2012 and offers the first gold infused sparkling wine. He is the former President and Chief Executive Officer of The Rising Beverage Co (Los Angeles, CA) and prior to that served as an adviser for First Beverage Group. Mr. Holland began his career at Mission Beverage, where he served as president for 15 years. During his tenure as President of Mission Beverage, Mr. Holland served on many distributor and supplier councils, which help companies such as Coors Brewing Co., Heineken, Guinness, Anheuser-Busch InBev and Glaceau, direct their business nationally and internationally.

 

David “Bump” Williams. Mr. Williams is the President and Chief Executive Officer of The BWC Company, a consulting company that works across the entire 6-tier network of beverages. Mr. Williams began his career at Procter & Gamble (“P&G”) where he developed a National Sales Program (Publishers Clearing House) that incorporated all P&G brands being merchandised across the United State with key national retailers. In 1986 he left P&G to head up Analytics and National Accounts at the A.C. Nielsen Company where he developed the industry’s first Beverage Vertical servicing a multitude of manufacturers, retailers and distributors. In 1994 he joined Information Resources, Inc. as the President of Global Consulting where he was responsible for the use of store-level data and consumer segmentation analyses that allowed the beverage industry to develop specific advertising, point of sale and new product launches at targeted consumers and specific demographic audiences. In 2008, Mr. Williams resigned his post at IRI and retired but has continued to provide consulting to several retailers to conduct analyses on the health of their beverage business and determine business plans and strategies designed to capitalize on changing consumer purchase behavior. He works on new product launches, pricing and promotion analytics, mergers and acquisitions, market expansion and strategic business planning. Mr. Williams serves on several boards of directors and advisors across the beverage alcohol and non-alcoholic beverage community.

 

Andres Siefken. Mr. Siefken is currently the EVP Marketing and Communications for Mastercard, having joined Mastercard in April 2017. In this role, he is responsible for the well-known Priceless marketing platform, the company’s reputation and competitive differentiation, and driving business for Mastercard products and services in North America. Prior to Mastercard, from 2015 to 2017, Mr. Siefken served as Principal and Advisor for The New England Consulting Group (“NECG”). As member of the retail, digital, consumer and innovation practices of NECG, Mr. Siefken helped CPG and Retail Executives find transformational strategies to accelerate growth. Prior to the NECG, from 2006 to 2015, Mr. Siefken served as Chief Marketing Officer and Executive Vice President of Daymon Worldwide, a global leader in private brand development and retail services. During that time, he was responsible for leading the corporate branding, global marketing, analytics and innovation teams for the company’s five businesses, as well as the operation of the Galileo Global Brand Group agency. Mr. Siefken began his career at Procter & Gamble before moving to escalating roles with beverage global leaders Allied Domecq Spirits and Wine, and Anheuser-Busch InBev.

 

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EXECUTIVE COMPENSATION

 

Executive Compensation

 

Summary Compensation Table

 

The following table sets forth all compensation of our Chief Executive Officer and each of our two most highly compensated executive officers other than our Chief Executive Officer (together, the ” Named Executive Officers “) for the fiscal years ended December 31, 2016 and 2015.

 

Name and Principal
Position
  Year   Salary (S)   Bonus ($)   Stock Awards ($)  

Option Awards

($)(1)

  

All Other Compensation

($)

   Total ($) 
Julian Davidson(2)   2016    -    211,250(6)   381,161(7)   776,933(9)   167,499(14)   1,536,843 
Executive Chairman   2015    -    -    -    -    -      
Philip Thomas(3)   2016    150,484    -    -    -    27,155(12)   177,639 
Chief Executive Officer   2015    99,300    -