UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2017
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________
Commission File Number 001-37808
LONG ISLAND ICED TEA CORP.
(Exact Name of Issuer as Specified in Its Charter)
| Delaware | 47-2624098 | |
(State or other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| 116 Charlotte Avenue, Hicksville, NY 11801 |
| (Address of Principal Executive Office) |
| (855) 542-2832 |
| (Issuer’s Telephone Number, Including Area Code) |
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
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 [ ] (Do not check if smaller reporting company) | Smaller reporting company [X] | |
| 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 13(a) of the Exchange Act. [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of May 12, 2017, 8,383,066 shares of common stock, par value $.0001 per share, were issued and outstanding.
LONG ISLAND ICED TEA CORP.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2017
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| As of | ||||||||
| March 31, 2017 | December 31, 2016 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 118,474 | $ | 1,249,550 | ||||
| Accounts receivable, net | 1,654,579 | 1,627,058 | ||||||
| Inventories, net | 1,074,477 | 1,187,941 | ||||||
| Restricted cash | - | 103,603 | ||||||
| Short term investments | 1,602,655 | 2,389,521 | ||||||
| Prepaid expenses and other current assets | 304,020 | 91,072 | ||||||
| Total current assets | 4,754,205 | 6,648,745 | ||||||
| Property and equipment, net | 206,232 | 218,036 | ||||||
| Intangible assets | 21,250 | 22,500 | ||||||
| Other assets | 49,308 | 52,470 | ||||||
| Deferred financing costs | 730,953 | 842,533 | ||||||
| Total assets | $ | 5,761,948 | $ | 7,784,284 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 702,826 | $ | 886,316 | ||||
| Accrued expenses | 803,381 | 911,843 | ||||||
| UBS Credit Line | - | 1,280,275 | ||||||
| Current portion of automobile loans | 8,467 | 11,446 | ||||||
| Current portion of equipment loan | 42,049 | 39,979 | ||||||
| Total current liabilities | 1,556,723 | 3,129,859 | ||||||
| Other liabilities | 30,000 | 30,000 | ||||||
| Deferred rent | 903 | 1,807 | ||||||
| Long term portion of automobile loans | 15,431 | 17,580 | ||||||
| Long term portion of equipment loan | 26,202 | 36,495 | ||||||
| Total liabilities | 1,629,259 | 3,215,741 | ||||||
| Commitments and contingencies, Note 8 | ||||||||
| 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; 8,358,066 and 7,715,306 shares issued and outstanding, as of March 31, 2017 and December 31, 2016, respectively | 836 | 772 | ||||||
| Additional paid-in capital | 20,581,990 | 17,575,583 | ||||||
| Accumulated deficit | (16,432,088 | ) | (12,977,566 | ) | ||||
| Accumulated other comprehensive loss | (18,049 | ) | (30,246 | ) | ||||
| Total stockholders' equity | 4,132,689 | 4,568,543 | ||||||
| Total liabilities and stockholders' equity | $ | 5,761,948 | $ | 7,784,284 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 1 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Net sales | $ | 1,113,337 | $ | 508,169 | ||||
| Cost of goods sold | 951,244 | 467,618 | ||||||
| Gross profit | 162,093 | 40,551 | ||||||
| Operating expenses: | ||||||||
| General and administrative expenses | 2,005,074 | 777,665 | ||||||
| Selling and marketing expenses | 1,502,943 | 486,543 | ||||||
| Total operating expenses | 3,508,017 | 1,264,208 | ||||||
| Operating loss | (3,345,924 | ) | (1,223,657 | ) | ||||
| Other expenses: | ||||||||
| Other expense | (12,378 | ) | - | |||||
| Interest expense, net | (96,220 | ) | (193,413 | ) | ||||
| Total other expenses | (108,598 | ) | (193,413 | ) | ||||
| Net loss | $ | (3,454,522 | ) | $ | (1,417,070 | ) | ||
| Unrealized gain on investments | 12,197 | - | ||||||
| Comprehensive loss | $ | (3,442,325 | ) | $ | (1,417,070 | ) | ||
| Weighted average number of common sharesoutstanding – basic and diluted | 8,073,559 | 4,720,929 | ||||||
| Basic and diluted net loss per share | $ | (0.43 | ) | $ | (0.30 | ) | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2017
(unaudited)
| Common Stock | ||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | |||||||||||||||||||
| Balance at January 1, 2017 | 7,715,306 | $ | 772 | $ | 17,575,583 | $ | (12,977,566 | ) | $ | (30,246 | ) | $ | 4,568,543 | |||||||||||
| Issuance of common stock in public offering, net of costs | 376,340 | 38 | 1,429,702 | - | - | 1,429,740 | ||||||||||||||||||
| Issuance of common stock to the board of directors | 41,965 | 4 | 174,996 | - | - | 175,000 | ||||||||||||||||||
| Issuance of common stock to consultants and vendors | 204,455 | 20 | 771,481 | - | - | 771,501 | ||||||||||||||||||
| Stock based compensation - issuance of common stock to an executive officer | 20,000 | 2 | 81,798 | - | - | 81,800 | ||||||||||||||||||
| Stock based compensation | - | - | 548,430 | - | - | 548,430 | ||||||||||||||||||
| Unrealized gain on investments | - | - | - | - | 12,197 | 12,197 | ||||||||||||||||||
| Net loss | - | - | - | (3,454,522 | ) | - | (3,454,522 | ) | ||||||||||||||||
| Balance at March 31, 2017 | 8,358,066 | $ | 836 | $ | 20,581,990 | $ | (16,432,088 | ) | $ | (18,049 | ) | $ | 4,132,689 | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | (3,454,522 | ) | $ | (1,417,070 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Bad debt expense | 257,787 | 8,693 | ||||||
| Depreciation and amortization expense | 42,619 | 39,945 | ||||||
| Deferred rent | (904 | ) | (518 | ) | ||||
| Loss on sale of securities | 11,458 | - | ||||||
| Stock based compensation | 630,230 | 181,354 | ||||||
| Amortization of deferred financing costs | 111,580 | 158,656 | ||||||
| Paid-in-kind interest | - | 36,359 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (285,308 | ) | (38,360 | ) | ||||
| Inventory | 113,464 | 231,080 | ||||||
| Prepaid expenses and other current assets | (80,888 | ) | (86,785 | ) | ||||
| Other assets | 3,162 | (36,162 | ) | |||||
| Accounts payable | 250,253 | (199,752 | ) | |||||
| Accrued expenses | 272,235 | 226,068 | ||||||
| Total adjustments | 1,325,688 | 520,578 | ||||||
| Net cash used in operating activities | (2,128,834 | ) | (896,492 | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Purchases of property and equipment | (29,564 | ) | - | |||||
| Release of restricted cash | 103,603 | 127,580 | ||||||
| Proceeds from short term investments | 803,946 | - | ||||||
| Purchase of short term investments | (16,341 | ) | - | |||||
| Net cash provided by investing activities | 861,644 | 127,580 | ||||||
| Cash Flows From Financing Activities | ||||||||
| Repayment of automobile loans | (5,128 | ) | (4,680 | ) | ||||
| Repayment of equipment loans | (8,223 | ) | (9,153 | ) | ||||
| Repayment of line of credit | (1,280,275 | ) | - | |||||
| Proceeds from line of credit, related party | - | 250,000 | ||||||
| Payments of deferred offering costs | - | (53,383 | ) | |||||
| Proceeds from the public offering, net of costs | 1,429,740 | - | ||||||
| Proceeds from the sale of common stock and warrants, net of costs | - | 741,790 | ||||||
| Net cash provided by financing activities | 136,114 | 924,574 | ||||||
| Net (decrease) increase in cash | (1,131,076 | ) | 155,662 | |||||
| Cash, beginning of period | 1,249,550 | 207,192 | ||||||
| Cash, end of period | $ | 118,474 | $ | 362,854 | ||||
| Cash paid for interest | $ | 1,868 | $ | 3,643 | ||||
| Non-cash investing and financing activities: | ||||||||
| Stock subscription receivable | $ | - | $ | 120,000 | ||||
| Issuance of common stock to consultants, vendors and customers | $ | 771,501 | $ | 136,532 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – BUSINESS ORGANIZATION, LIQUIDITY AND MANAGEMENT’S PLANS
Business Organization
Long Island Iced Tea Corp, a Delaware corporation (“LIIT”), was formed on December 23, 2014. LIIT was formed in order to allow for the completion of mergers between Cullen Agricultural Holding Corp. (“Cullen”) and Long Island Brand Beverages LLC (“LIBB”). On December 31, 2014, LIIT entered into a merger agreement, as amended as of April 23, 2015, with Cullen, a public company, Cullen Merger Sub, Inc. (“Cullen Merger Sub”), LIBB Acquisition Sub, LLC (“LIBB Merger Sub”), LIBB and the founders of LIBB (“Founders”). Pursuant to the merger agreement, (a) Cullen Merger Sub was merged with and into Cullen, with Cullen surviving and becoming a wholly-owned subsidiary of LIIT and (b) LIBB Merger Sub was merged with and into LIBB, with LIBB surviving and becoming a wholly-owned subsidiary of LIIT (the “Mergers”). As a result of the Mergers which were consummated on May 27, 2015, LIIT consisted of its wholly owned subsidiaries, LIBB (its operating subsidiary) and Cullen and Cullen’s wholly owned subsidiaries (collectively the “Company”).
Under the merger agreement, upon consummation of the Mergers, the former holders of the LIBB membership interests (the “LIBB members”) received 2,633,334 shares of common stock of LIIT (or approximately 63%).
For accounting purposes, the Mergers were treated as an acquisition of Cullen by LIBB and as a recapitalization of LIBB, as the former LIBB members held a large percentage of LIIT’s shares and exercised significant influence over the operating and financial policies of the consolidated entity and Cullen was a public shell company at the time of the transaction. Pursuant to Accounting Standards Codification (“ASC”) 805-10-55-11 through 55-15, the merger or acquisition of a private operating company into a non-operating public shell with nominal assets is considered a capital transaction in substance rather than a business combination. As a result, the condensed consolidated balance sheets, statements of operations, and statements of cash flows of LIBB have been retroactively updated to reflect the recapitalization. Additionally, the historical condensed consolidated financial statements of LIBB are now reflected as those of the Company.
Overview
The Company is a holding company operating through its wholly-owned subsidiary, LIBB. The Company is engaged in the production and distribution of premium Non-Alcoholic ready-to-drink (“NARTD”) iced tea in the beverage industry. The Company is currently organized under its flagship brand, Long Island Iced Tea, a premium NARTD tea made from a proprietary recipe and with quality components. The Company’s mission is to provide consumers with premium iced tea offered at an affordable price.
The Company aspires to be a market leader in the development of iced tea beverages that are convenient and appealing to consumers. There are two major target markets for Long Island Iced Tea: “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 the less healthy options, such as carbonated soft drinks, towards alternative beverages such as iced tea.
| 5 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – BUSINESS ORGANIZATION, LIQUIDITY AND MANAGEMENT’S PLANS (CONTINUED)
Overview, continued
The Company produces a 100% brewed 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, sweet tea and half tea and half lemonade. The Company also offers lower calorie iced tea in twelve (12) ounce bottles. The lower calorie flavor options include mango, raspberry and peach. The Company also sells its iced tea in gallon bottles with flavor options including lemon, peach, green tea and honey, sweet tea and mango. The company also sells a private label version of its iced tea products. In addition, in order to service certain vending contracts, the Company sells snacks and other beverage products on a limited basis.
The Company distributes an aloe vera derived juice beverage (“ALO Juice”). During the three months ended March 31, 2017, the Company’s ALO Juice product accounted for approximately 36% of its condensed consolidated net sales.
On March 14, 2017, the Company announced that it is expanding its brand to include lemonade. Lemonade will be offered in nine flavors and will be offered at retail in both single and 12-packs of 18oz bottles.
The Company sells its 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, Nevada, Rhode Island and parts of the Midwest. As of March 31, 2017, the Company’s products are available in 27 states and in Canada and Latin America.
Asset Purchase Agreement
On December 8, 2016, the Company entered into an asset purchase agreement with The Wilnah International, LLC (“Wilnah”). Pursuant to the agreement, the Company will acquire the intellectual property (“IP”) (trade names, formulas, recipes) for ALO Juice. Upon the closing, the Company will issue to Wilnah 5,000 shares of its common stock. The closing of the transaction is expected to occur in the second quarter of 2017. Separately, the Company has entered into an employment agreement with Julio X. Ponce, majority interest member of Wilnah, to expand the Company’s sales of ALO Juice products within the Southeast U.S. and Latin American regions.
Liquidity and Management’s Plan
The Company has been focused on the development of its brand and its infrastructure, as well as in the establishment of a network of distributors and qualified direct accounts. From inception, the Company has financed its operations through the issuance of debt and equity, and through utilizing trade credit with its vendors.
As of March 31, 2017, the Company had cash of $118,474 and short term investments of $1,602,655. As of March 31, 2017, the Company had working capital of $3,197,482. The Company incurred net losses of $3,454,522 and $1,417,070 for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, the Company’s stockholders’ equity was $4,132,689.
| 6 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – BUSINESS ORGANIZATION, LIQUIDITY AND MANAGEMENT’S PLANS (CONTINUED)
Liquidity and Management’s Plan, continued
Pursuant to a Credit and Security Agreement (the “Credit Agreement”), the Company has a revolving credit facility in an amount up to $3,500,000, subject to approval by the lender (See Note 5).
On January 27, 2017, the Company sold 376,340 shares of the Company’s common stock in a public offering at an average price of $4.02 per share. Of the shares sold, 300,000 were sold to the public at an offering price of $4.00 while the remaining 76,340 shares were sold to officers and directors of the Company at a price of $4.10 per share. The sale of common stock generated gross proceeds of $1,513,000 and net proceeds of $1,429,740 after deducting commissions and other offering expenses.
The Company believes that as a result of the commitment for financing from certain members of management and a stockholder and its working capital as of March 31, 2017, its cash resources will be sufficient to fund the Company’s net cash requirements through May 15, 2018. However, in order to execute the Company’s long-term growth strategy, the Company may need to raise additional funds through private equity offerings, debt financings, or other means. On May 12, 2017, the Company received a commitment letter from certain members of management and a stockholder committing to fund any cash deficit required to sustain the operations of the Company through May 15, 2018. There are no assurances that the Company will be able to raise such funds on terms that would be acceptable to the Company.
In consideration for a prior commitment for financing the Company through March 31, 2018 from a stockholder, on March 29, 2017, the Company’s Board of Directors issued to this stockholder a warrant to purchase 165,000 shares of the Company’s common stock at an exercise price of $4.18 per share. This warrant has a term of one year and was fully vested upon issuance. The option had a grant date fair value of $172,526, which was fully charged to general and administrative expense during the three months ended March 31, 2017. The fair value of the warrant was determined utilizing the Black-Scholes option pricing model, based upon a common stock price of $4.00 per share, dividend yield of 0%, expected volatility of 70%, risk free interest rate of 1.00%, and an expected life in years of 1.00.
In consideration for the May 12, 2017 commitment for financing the Company through May 15, 2018 from a stockholder, on May 12, 2017, the Company’s Board of Directors issued to this stockholder a warrant to purchase 20,000 shares of the Company’s common stock at an exercise price of $4.90 per share. This warrant has a term of one year and was fully vested upon issuance.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2016 and related notes thereto included in the Company’s Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on March 30, 2017.
Reclassification
Certain amounts in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no effect on the previously reported net loss.
| 7 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and also affect the amounts of revenues and expenses reported for each period. Actual results could differ from those which result from using such estimates. Management utilizes various other estimates, including but not limited to, assessing the collectability of accounts receivable, accrual of rebates to customers, the valuation of securities, the valuation of inventory, determining the estimated lives of long-lived assets, determining the potential impairment of intangibles, the fair value of warrants issued, the fair value of stock options, and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary.
Revenue Recognition
Revenue is stated net of sales discounts and rebates paid to customers (See Customer Marketing Programs and Sales Incentives, below). Net sales are recognized when all of the following conditions are met: (1) the price is fixed and determinable; (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 and accounts receivable until such recognition criteria are met.
Customer Marketing Programs and Sales Incentives
The Company participates 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 various discounts to the end retailers or for participating in specific marketing programs. The Company believes that its participation in these programs is essential to ensuring volume and revenue growth in a competitive marketplace. During the three months ended March 31, 2017, an adjustment to these allowances resulted in an increase of $9,144 in net sales. During the three months ended March 31, 2016, these allowances resulted in a reduction in net sales of $45,165.
Shipping and Handling Costs
Shipping and handling costs incurred to move finished goods from the Company’s sales distribution centers to customer locations are included in selling and marketing expenses within the condensed consolidated statements of operations and totaled $25,290 and $40,152, for the three months ended March 31, 2017 and 2016, respectively.
| 8 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising
The Company expenses advertising costs as incurred. Advertising costs are included in selling and marketing expenses within the condensed consolidated statements of operations and totaled $51,642 and $9,631 for the three months ended March 31, 2017 and 2016, respectively.
Research and Development
Costs related to new product initiatives incurred during the three months ended March 31, 2017 and 2016 were $176,862 and $400, respectively, and were included in selling and marketing expenses. Other research and development costs were $829 and $46,667 for the three months ended March 31, 2017 and 2016, respectively and were included in general and administrative expenses. The expenses incurred during the three months ended March 31, 2016 were incurred pursuant to a product development agreement which will require the Company to pay $40,000 in cash and $40,000 in common stock upon the completion of the arrangement. As of March 31, 2017, $50,000 was included in accrued expenses in the condensed consolidated balance sheet related to the 2016 arrangement.
Short-term Investment
The Company accounts for securities in accordance with accounting standards for investments in debt and equity securities. Accounting standards require investments in debt and equity securities to be classified as either “held to maturity”, “trading”, or “available-for-sale.”
The Company holds investments in marketable securities, consisting of U.S. government securities and mutual funds. The Company’s available-for-sale securities are carried at estimated fair value with any unrealized gains and losses, net of taxes, included in accumulated other comprehensive (loss) income in stockholders’ equity when applicable. During the three months ended March 31, 2017 and 2016, the unrealized gain was $12,197 and $0, respectively. Unrealized losses are charged against interest and other income/(expense), net, when a decline in fair value is determined to be other-than-temporary. The Company has not recorded any such impairment charge in the periods presented. The Company determines realized gains or losses on sale of marketable securities on a specific identification method, and records such gains or losses as interest and other income/(expense), net.
The following table sets forth the available-for-sale securities:
| As of | ||||||||
| March 31, 2017 | December 31, 2016 | |||||||
| US Government Securities | $ | - | $ | 195,374 | ||||
| Fixed income Mutual Funds | 1,602,655 | 2,194,147 | ||||||
| $ | 1,602,655 | $ | 2,389,521 | |||||
| 9 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Short-term Investment, (continued)
Short-term investments included the following securities with gross unrealized gains/losses included in other comprehensive loss:
| As of March 31, 2017 | ||||||||||||
| Amortized | Unrealized | |||||||||||
| Cost | Loss | Fair Value | ||||||||||
| U. S. government securities | $ | - | $ | - | $ | - | ||||||
| Fixed income Mutual funds | 1,620,704 | (18,049 | ) | 1,602,655 | ||||||||
| Total | $ | 1,620,704 | $ | (18,049 | ) | $ | 1,602,655 | |||||
| As of December 31, 2016 | ||||||||||||
| Amortized | Unrealized | |||||||||||
| Cost | Losses | Fair Value | ||||||||||
| U. S. government securities | $ | 195,570 | $ | (196 | ) | $ | 195,374 | |||||
| Fixed income Mutual funds | 2,224,197 | (30,050 | ) | 2,194,147 | ||||||||
| Total | $ | 2,419,767 | $ | (30,246 | ) | $ | 2,389,521 | |||||
The following table classifies the US Government Securities by maturity:
| As of | ||||||||
| March 31, 2017 | December 31, 2016 | |||||||
| Within one year | $ | - | $ | 94,967 | ||||
| Within one to five years | - | 100,407 | ||||||
| $ | - | $ | 195,374 | |||||
Accounts Receivable
The Company sells products to distributors and in certain cases directly to retailers, and extends credit, generally without requiring collateral, based on its evaluation of the customer’s financial condition. While the Company has a concentration of credit risk in the retail sector, it believes this risk is mitigated due to the diverse nature of the customers it serves, including, but not limited to, its type, geographic location, size, and beverage channel. Potential losses on the Company’s receivables are dependent on each individual customer’s financial condition and sales adjustments granted after the balance sheet date. The Company carries its trade accounts receivable at net realizable value. Accounts receivable have terms of ranging from 30 to 75 days and do not bear interest. The Company monitors its exposure to losses on receivables and maintains allowances for potential losses or adjustments. The Company determines these allowances by (1) evaluating the aging of its receivables; (2) analyzing its history of sales adjustments; and (3) reviewing its high-risk customers. Past due receivable balances are written off when the Company’s efforts have been unsuccessful in collecting the amount due. Accounts receivable are stated at the amounts management expects to collect.
| 10 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable, continued
Accounts receivable, net, is as follows:
| As of | ||||||||
| March 31, 2017 | December 31, 2016 | |||||||
| Accounts receivable, gross | $ | 2,144,878 | $ | 1,859,474 | ||||
| Allowance for doubtful accounts | (490,299 | ) | (232,416 | ) | ||||
| Accounts receivable, net | $ | 1,654,579 | $ | 1,627,058 | ||||
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions, short-term investments and accounts receivable. At times, the Company’s cash in banks is in excess of the FDIC insurance limit. The Company has not experienced any loss as a result of these cash deposits. These cash balances are maintained with two banks. As of March 31, 2017, the Company was exposed to concentrations of credit risk through short-term investments held with two financial institutions. One customer accounted for 47% and 46% of the Company’s trade receivables as of March 31, 2017 and December 31, 2016, respectively. The Company does not generally require collateral or other security to support customer receivables.
On March 14, 2017, a distributor that represented 47% of the Company’s trade receivables as of March 31, 2017 issued to the Company a note in the amount of $467,444 due on June 12, 2017. Such note provides credit enhancement and bears interest commencing on the 45th day from the date of execution based on the Wall Street Journal’s prime rate at (4% per annum at March 31, 2017) for a period of 45 days and then adjusted to 15% per annum, thereafter. The obligations of the distributor under the note are personally guaranteed by its former part owner, who, on January 1, 2017, became the Company’s employee.
The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required.
Inventories
The Company’s inventory includes raw materials such as bottles, sweeteners, labels, flavors and packaging. Finished goods inventory consists of bottled iced tea and ALO Juice. As of March 31, 2017 and December 31, 2016, included in inventory was finished goods inventory with a cost of approximately $206,000 and $320,000, respectively, that was delivered to a distributor, and is held in inventory until certain revenue recognition criteria are met.
The Company values its inventories at the lower of cost or market, net of reserves. Cost is determined using the first-in, first-out (FIFO) method. As of March 31, 2017 and December 31, 2016, the Company recorded reserves of $59,113 and $45,078, respectively, to reduce the cost of certain products to estimated net realizable value. The following table summarizes inventories as of the dates presented:
| As of | ||||||||
| March 31, 2017 | December 31, 2016 | |||||||
| Finished goods | $ | 627,970 | $ | 905,642 | ||||
| Raw materials and supplies | 446,507 | 282,299 | ||||||
| Total inventories | $ | 1,074,477 | $ | 1,187,941 | ||||
| 11 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment is recorded at cost. Major property additions, replacements, and betterments are capitalized, while maintenance and repairs that do not extend the useful lives of an asset or add new functionality are expensed as incurred. Depreciation is recorded using the straight-line method over the respective estimated useful lives of the Company’s assets.
The estimated useful lives typically are 3 years for cold-drink containers, such as reusable fridges, wood racks, vending machines, barrels, and coolers, and are depreciated using the straight-line method over the estimated useful life of each group of equipment, as determined using the group-life method. Under this method, the Company does not recognize gains or losses on the disposal of individual units of equipment when the disposal occurs in the normal course of business. The Company capitalizes the costs of refurbishing its cold-drink containers and depreciates those costs over the estimated period until the next scheduled refurbishment or until the equipment is retired. The estimated useful lives are typically 3 to 5 years for office furniture and equipment and are depreciated on a straight-line basis. The estimated useful lives for trucks and automobiles are typically 3 to 5 years and are depreciated on a straight line basis. For the three months ended March 31, 2017 and 2016, depreciation expense was $41,369 and $38,694, respectively.
Intangible Assets
Intangible assets with finite useful lives are amortized over their expected useful life. Intangible assets with useful lives are tested for impairment when circumstances indicate that there could be an impairment. Intangible assets with finite useful lives include website development costs of $1,250 and $2,500 as of March 31, 2017 and December 31, 2016, respectively. The estimated useful life of the capitalized costs of the Company’s website is 3 years and is depreciated on a straight line basis. As of March 31, 2017, the cost of the website development was $15,000 and the accumulated amortization was $13,750. As of December 31, 2016, the cost of the website development was $15,000 and the accumulated amortization was $12,500. For the three months ended March 31, 2017 and 2016, amortization expense was $1,250 and $1,251, respectively. Expected future amortization of website development costs is $1,250 for the nine months ended December 31, 2017.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement, and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carry forwards will result in a benefit based on expected profitability by tax jurisdiction.
In its interim financial statements, the Company follows the guidance in ASC 270, “Interim Reporting” and ASC 740 “Income Taxes”, whereby the Company utilizes the expected annual effective tax rate in determining its income tax provisions for the interim periods. That rate differs from U.S. statutory rates primarily as a result of valuation allowance related to the Company’s net operating loss carryforward as a result of the historical losses of the Company.
| 12 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes, continued
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liabilities. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. The Company accounts for uncertain tax positions in accordance with ASC 740 —“Income Taxes”. No uncertain tax provisions have been identified. The Company accrues interest and penalties, if incurred, on unrecognized tax benefits as components of the income tax provision in the accompanying condensed consolidated statements of operations. Our primary tax jurisdictions are our federal, various state, and local taxes.
Generally, Federal, State and Local authorities may examine the Company’s tax returns for three years from the date of filing.
In accordance with ASC 740, the Company evaluates whether a valuation allowance should be established against the net deferred tax assets based upon the consideration of all available evidence and using a “more likely than not” standard. Significant weight is given to evidence that can be objectively verified. The determination to record a valuation allowance is based on the recent history of cumulative losses and current operating performance. In conducting the analysis, the Company utilizes an approach, which considers the current year loss, including an assessment of the degree to which any losses are driven by items that are unusual in nature and incurred to improve future profitability. In addition, the Company reviews changes in near-term market conditions and any other factors arising during the period, which may impact its future operating results.
Loss per share
Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon the exercise of stock options, warrants and the conversion. The computation of diluted earnings per share excludes those with an exercise price in excess of the average market price of the Company’s common shares during the periods presented. The computation of diluted earnings per share excludes outstanding options, warrants and other dilutive instruments in periods where the inclusion of such instruments would be antidilutive, as provided below:
| For the Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Options to purchase common stock | 862,964 | 425,411 | ||||||
| Warrants to purchase common stock | 635,570 | 470,570 | ||||||
| Total potentially dilutive securities | 1,498,534 | 895,981 | ||||||
Fair Value of Financial Instruments
The carrying amounts of cash, short term investments, accounts receivable, accrued expenses, automobile and equipment loans and the UBS Credit Line (See Note 4 below) approximate fair value due to the short-term nature of these instruments. In addition, for notes payable, the Company believes that interest rates approximate prevailing rates.
| 13 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments, continued
ASC 820 “Fair Value Measurements and Disclosures” provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
Fair value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.
Level 3 Significant unobservable inputs that cannot be corroborated by market data.
Fair values for short-term money market investments are determined from quoted prices in active markets for these money market funds, and are considered to be Level 1.
The carrying value of financial instruments in the Company’s condensed consolidated financial statements are as follows:
| Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||
| Short-term investments at March 31, 2017 | $ | 1,602,655 | $ | - | $ | - | ||||||
| Short-term investments at December 31, 2016 | $ | 2,389,521 | $ | - | $ | - | ||||||
| 14 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
In January 2016, the FASB, issued Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends the guidance in U.S. generally accepted accounting principles on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and are to be adopted by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.
In February 2016, the FASB issued new lease accounting guidance (ASU No. 2016-02, Leases). Under the new guidance, at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.
On March 30, 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, “Compensation – Stock Compensation (Topic 718)”. This update requires that all excess tax benefits and tax deficiencies arising from share-based payment awards should be recognized as income tax expense or benefit on the income statement. The amendment also states that excess tax benefits should be classified along with other income tax cash flows as an operating activity. In addition, an entity can make an entity-wide accounting policy election to either estimate the number of awards expected to vest or account for forfeitures as they occur. The provisions of this update are effective for annual and interim periods beginning after December 15, 2016. The Company adopted this standard effective December 31, 2016. The adoption did not have a material effect on the Company’s condensed consolidated financial statements.
In April 2016, the FASB issued Accounting Standards Update ASU No. 2016-10 “Revenue from Contracts with Customers (Topic 606)”, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”). ASU 2016-10 clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early application permitted. The Company is continuing to evaluate the expected impact of this new revenue guidance. The Company is currently preparing its assessment of the full financial impact of the new revenue recognition guidance, including the method of adoption, and intends to adopt the guidance when it becomes effective for the Company on January 1, 2018.
| 15 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements, continued
In May 2016, the FASB issued Accounting Standards Update ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606)”, “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The core principal of ASU 2016-12 is the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early application permitted. The Company is continuing to evaluate the expected impact of this new revenue guidance. The Company is currently preparing its assessment of the full financial impact of the new revenue recognition guidance, including the method of adoption, and intends to adopt the guidance when it becomes effective for the Company on January 1, 2018.
In August 2016, the FASB issued Accounting Standards Update ASU No. 2016-15 “Statement of Cash Flows (Topic 230)”, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). The amendments for this update provide guidance on the eight specific cash flows: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The provisions of this update are effective for annual and interim periods beginning after December 15, 2016, with early application permitted. The Company adopted this standard effective December 31, 2016. The adoption did not have a material effect on the Company’s condensed consolidated financial statements.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01, “Clarifying the Definition of a Business” (“ASU 2017-01”), which provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 requires entities to use a screen test to determine when an integrated set of assets and activities is not a business or if the integrated set of assets and activities needs to be further evaluated against the framework. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.
Management’s Evaluation of Subsequent Events
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the review, other than described in Note 1 –Business Organization, Liquidity, and Management’s Plans, Note 8 - Commitments and Contingencies and Note 11 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.
| 16 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 – EQUIPMENT LOAN
On November 23, 2015, the Company entered into a reimbursement agreement with Magnum Vending Corp. (“Magnum”), an entity managed by Philip Thomas, the Company’s Chief Executive Officer and a director of the Company, and certain of his family members. In exchange for the exclusive right to stock vending machines owned by Magnum, the Company 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 the Company. In addition, in exchange for the right to stock certain other vending machines that the Company has the right to use, the Company agreed to purchase the products required to be displayed in those vending machines from Magnum, at a price equal to Magnum’s cost for such products (See Note 10). The Company may terminate the agreement and all obligations to make future payments on ten days’ written notice to Magnum. As of March 31, 2017 and December 31, 2016, the outstanding balance on the equipment loan was $68,251 and $76,474, respectively.
NOTE 4 – UBS CREDIT LINE
On October 27, 2016, the Company 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 March 31, 2017, the interest rate on the UBS Credit Line was 3.483 %. The UBS Credit Line, when drawn, is collateralized by certain of the Company’s short-term investments. As of March 31, 2017 and December 31, 2016, the outstanding balance on the line of credit was $0 and $1,280,275, respectively. As of March 31, 2017 and December 31, 2016, the Company’s borrowing capacity under the UBS Credit line was $521,587 and $19,725, respectively.
NOTE 5 – LINE OF CREDIT – RELATED PARTIES
Brentwood LIIT Corp.
On November 23, 2015, LIIT and LIBB entered into a Credit and Security Agreement (the “Credit Agreement”), by and among LIBB, as the borrower, LIIT and LIIT (NZ) Ltd. (the “Lender”). The Lender is controlled by a related party, Eric Watson, who beneficially owned approximately 17.4% of the Company as of March 31, 2017. The Credit Agreement provides for a revolving credit facility in an amount of up to $3,500,000, subject to approval by the lender. The Available Amount may be increased, in increments of $500,000, up to the Facility Amount, and LIBB may obtain further advances, subject to the approval of the Lender.
NOTE 6 – STOCKHOLDERS’ EQUITY
2017 Issuances
On January 3, 2017, the Company issued 1,790 shares to a product broker. The shares had a fair value of $7,500.
On January 17, 2017, the Company issued 41,965 shares of common stock to directors of the Company. The shares were issued in satisfaction of accrued director fees and had a fair value of $175,000.
| 17 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 – STOCKHOLDERS’ EQUITY (CONTINUED)
2017 Issuances, continued
On January 30, 2017, the Company issued 61,208 shares of the Company’s common stock to consultants of the Company in satisfaction of accrued obligations. The shares were valued based upon the value of such services. The fair value was $213,550. As of March 31, 2017, $104,690 is included within prepaid expenses and other current assets in the condensed consolidated balance sheets.
On March 27, 2017, the Company’s Board of Directors approved the issuance of 5,000 and 25,000 shares of the Company’s common stock to directors and consultants, respectively, in consideration of services provided. The fair value of these shares was $112,853.
On March 27, 2017, the Company’s Board of Directors approved the issuance of 111,457 shares of the Company’s common stock to consultants of the Company in consideration of services provided. The fair value of these shares was $437,598.
NOTE 7 – STOCK BASED COMPENSATION
Stock Options
On May 27, 2015, the Company’s board of directors adopted the 2015 Long-Term Incentive Equity Plan (“2015 Stock Option Plan”). The 2015 Stock Option Plan provides for the grant of stock options, stock appreciation rights, restricted stock and other stock-based awards to, among others, the officers, directors, employees and consultants of the Company. During January 2017, the 2015 Stock Option Plan was amended to increase the aggregate number of shares authorized for issuance by 283,333 shares to 750,000 shares.
On January 5, 2017, the Company issued to various officers, directors, and employees options to purchase an aggregate of 220,867 shares of the Company’s common stock. The options expire five years from the date of grant, have an exercise price of $5.00, and vest quarterly over two years, beginning on April 5, 2017. The options have a fair value of $440,698.
On January 30, 2017, pursuant to his consulting agreement, Mr. Davidson, the Company’s Executive Chairman, was granted an option to purchase 71,686 shares of the Company’s common stock (See Note 8). The option expires four and a half years from the date of grant, has an exercise price of $4.09, and vests in three equal installments on January 30, 2017, July 28, 2017, and July 28, 2018. The option has a fair value of $131,240.
On March 10, 2017, in connection with his amended and restated employment agreement, Mr. Thomas, the Company’s Chief Executive Officer (“CEO”), was granted an option to purchase 75,000 shares of the Company’s common stock. The option expires five years from the date of grant and has an exercise price of $4.50 per share. The option will vest in three annual installments beginning on the date of grant. The option has a fair value of $128,062.
On March 27, 2017, as compensation, the Company issued to a director an option to purchase 70,000 shares of the Company’s common stock. The option will expire five years from the date of grant, has an exercise price of $4.50 per share, and vests in three annual installments beginning on the date of grant. The option has a fair value of $130,266.
| 18 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 – STOCK BASED COMPENSATION (CONTINUED)
Stock Options, continued
The Company determined the fair value of stock options granted based upon the assumptions as provided below.
| For the Three Months Ended March 31, 2017 | ||||
| Stock price | $ 3.88-$4.32 | |||
| Exercise price | $ 4.09-$5.00 | |||
| Dividend yield | 0% | |||
| Expected volatility | 72-75% | |||
| Risk-Free interest rate, per annum | 1.43% – 1.57% | |||
| Expected life (in years) | 2.58 - 3.06 | |||
The following table summarizes the stock option activity of the Company:
| Shares | Weighted Average Exercise Price | Weighted Average Grant Date Fair Value | Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||||
| Outstanding at January 1, 2017 | 425,411 | $ | 4.93 | $ | 3.85 | |||||||||||||||
| Granted | 437,553 | 4.69 | 1.90 | |||||||||||||||||
| Exercised | - | - | - | |||||||||||||||||
| Expired, forfeited or cancelled | - | - | - | |||||||||||||||||
| Outstanding at March 31, 2017 | 862,964 | $ | 4.81 | $ | 2.86 | 4.4 | $ | 20,800 | ||||||||||||
| Exercisable at March 31, 2017 | 289,144 | $ | 4.48 | $ | 3.95 | 3.9 | $ | 18,200 | ||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock.
As of March 31, 2017, there was a total of $1,048,036 of unrecognized compensation expense related to unvested stock options. This cost is expected to be recognized through 2019 over a weighted average period of 1.33 years.
The Company accounts for all stock based compensation as an expense in the financial statements and associated costs are measured at the fair value of the award or the fair value of the service provided whichever is most readily determinable.
| 19 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 – STOCK BASED COMPENSATION (CONTINUED)
Stock Warrants
The following table summarizes the common stock warrant activity of the Company:
| Number of shares | Weighted average exercise price | Weighted average contractual life (years) | ||||||||||
| Outstanding - January 1, 2017 | 470,570 | $ | 5.95 | - | ||||||||
| Issued | 165,000 | $ | 4.18 | - | ||||||||
| Expired | - | $ | - | - | ||||||||
| Outstanding March 31, 2017 | 635,570 | $ | 5.49 | 1.7 | ||||||||
| Exercisable at March 31, 2017 | 635,570 | $ | 5.49 | 1.7 | ||||||||
The following tables summarize total stock-based compensation costs recognized for the three months ended March 31, 2017 and 2016:
| For the Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Stock options | $ | 375,904 | $ | 151,354 | ||||
| Warrants | 172,526 | - | ||||||
| Common Stock | 81,800 | 30,000 | ||||||
| Total | $ | 630,230 | $ | 181,354 | ||||
The total amount of stock-based compensation was reflected within the statements of operations and comprehensive loss as:
| For the Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| General and administrative | $ | 421,817 | $ | 135,740 | ||||
| Sales and marketing | 208,413 | 45,614 | ||||||
| Total | $ | 630,230 | $ | 181,354 | ||||
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is involved in various claims and legal actions arising from time to time in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters in ordinary course of business will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. Legal costs related to these matters are expensed as they are incurred.
| 20 |
LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
Legal Proceedings, continued
On August 1, 2014, an action was filed by LIBB in the Supreme Court in the State of New York entitled Long Island Brand Beverages LLC v. Revolution Marketing, LLC (“Revolution”) and Ascent Talent, Model Promotion Ltd. LIBB is seeking damages of $10,000,000 for several claims including breach of contract and fraud occurring during 2014. Revolution has filed a counterclaim for breach of contract and related causes of action, claiming damages in the sum of $310,880, and seeking punitive damages of $5,000,000. Ascent has filed a pre-answer motion to dismiss LIBB’s complaint. LIBB filed papers in opposition and the motion was submitted by March 9, 2015. In addition, Revolution has filed a motion to amend its answer to include cross-claims against Ascent which were not asserted in its original answer of record. On February 5, 2016, the Court rendered a decision. The motion to dismiss was denied with the exception of two claims which the Court dismissed. In the same decision, the Court granted a separate motion filed by Revolution to amend its answer to include cross-claims against Ascent. The Company’s management and legal counsel believes it is too early to determine the probable outcome of this matter.
Brokerage Arrangements
The Company maintains arrangements with sales brokers who help with bringing new distributors and retail outlets to the Company. These sales brokers receive a commission for these services. For the three months ended March 31, 2017, commissions to these brokers ranged from 2-5% of sales. In addition, the Company sells its products through alternative vending channels. Commissions resulting from sales through these channels were 42% and 42% for the three months ended March 31, 2017 and 2016, respectively.
Employment Agreements
On December 9, 2016, the Company entered into an employment agreement with Julio X. Ponce to serve as Vice President of Southeast and Latin American Sales of the Company. Until December 31, 2016, Mr. Ponce was an owner of one of the Company’s distributors. Mr. Ponce’s primary duties shall be to advance the sales of ALO Juice. The term of employment agreement is from January 1, 2017 to December 31, 2017 and can be extended by written mutual agreement of the parties. Mr. Ponce will receive a base salary of $90,000 and an incentive bonus of up to 62,500 shares of the Company’s common stock based on the introduction or procurement of sales and/or distributors of the Company’s products outside of the Southeast United States and an additional performance bonus of up to 905,769 shares of the Company’s common stock based on sales of the Company’s iced tea and ALO Juice product by Mr. Ponce to approved customers reaching target thresholds in 2017. The target thresholds are between $2.5 million and $5.5 million for ALO Juice and between $2.0 million and $4.0 million for the Company’s iced tea products. Notwithstanding the foregoing, if such sales in 2018 do not reach at least 60% of their 2017 levels, the performance bonus will not be payable.
On March 10, 2017, the Company entered into an amended and restated employment agreement with Mr. Thomas. The amended employment agreement has a term that runs until December 31, 2019. Mr. Thomas will receive a base salary of $250,000, was paid $83,000 upon the signing of the agreement, and is eligible for paid incentive bonuses from the Company. Pursuant to the agreement, Mr. Thomas was also granted an option to purchase 75,000 shares of the Company’s common stock (See Note 7).
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LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
Consulting Agreements
On June 6, 2016, the Company entered into an amendment to the consulting agreement with Julian Davidson which provides for him to serve as the Company’s Executive Chairman. Either Mr. Davidson or the Company may terminate the consulting agreement with 30 days’ prior written notice. Pursuant to the consulting agreement, as in effect prior to its amendment and restatement as described below, the Company (a) paid to Mr. Davidson $10,000 per month, and (b) granted to Mr. Davidson 1,667 shares of common stock per month (an aggregate of 4,302 shares). The consulting agreement, as amended, contains provisions for protection of the Company’s intellectual property and confidentiality and non-competition restrictions for Mr. Davidson (generally imposing restrictions during the term of the consulting agreement, on (i) ownership or management of, or employment or consultation with, competing companies, (ii) soliciting employees to terminate their employment (iii) soliciting business from the Company’s customers, and (iv) soliciting prospective acquisition and investment candidates for purposes of acquiring or investing in such entity).
On August 18, 2016, the Company entered into a second amendment to the consulting agreement with Julian Davidson. The amendment modified the condition that was required to be satisfied for certain changes in the compensation payable to Mr. Davidson under the consulting agreement to take effect. After the amendment, upon the Company completing an equity raise with gross proceeds of at least $6,900,000, the monthly cash fee to Mr. Davidson increases to $20,000 per month, the monthly stock grant to Mr. Davidson is eliminated and Mr. Davidson receives a one-time cash bonus of $95,000 and a one-time grant of 50,000 shares of the Company’s common stock. The amendment also modified the compensation that will be payable to Mr. Davidson under his agreement. Mr. Davidson is entitled to receive an option to purchase 4% of the fully diluted common stock outstanding immediately after the Offering, or 286,744 shares of the Company’s common stock. On August 18, 2016, the Company granted to Mr. Davidson an option to purchase 286,744 shares of common stock.
On October 5, 2016, the Company entered into an amended and restated consulting agreement with Julian Davidson (“Davidson Amendment”), effective as of September 29, 2016, which provides for him to continue to serve as the Company’s Executive Chairman.
On March 1, 2017, the Company entered into a consulting agreement with an investor relations and communications firm. The agreement commenced on March 1, 2017 for an initial term of two months. The agreement was renewed for the month of May 2017 and may be renewed on a monthly basis by the Company. The agreement shall terminate in 180 days from the date of the agreement. In consideration for services, the Company shall pay (a) $15,000 in cash on the signing of the contract and $15,000 on the 5th day of each month thereafter, (b) up to $135,000 in ancillary budget (at the Company’s discretion) due each month for the balance of the contract, (c) issue 10,000 shares of common stock upon the execution of the agreement and issue a 10,000 shares of common stock on the 5th day of each month of the agreement until termination or renewal of this agreement, and (d) the reimbursements of pre-approved travel or other expenses monthly.
Distribution Agreements
On March 14, 2017, the Company entered into a long-term strategic distribution agreement with Big Geyser, a large independent non-alcoholic beverage distributor in metro New York. Big Geyser will be the exclusive distributor of the Company’s iced tea and lemonade 18oz bottle products. 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 the distribution footprint and allow the Company to streamline the business and bring additional focus to building the Company’s brand. As part of the distribution agreement, the Company has also agreed to issue warrants to Big Geyser in the second quarter as compensation for achieving certain performance targets.
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LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
Leases
On June 6, 2014, the Company entered into a lease agreement. The lease commenced on July 1, 2014 and extends through June 30, 2017 and includes a two year extension option.
Rent expense for the three months ended March 31, 2017 and 2016 was $11,458 and $10,074, respectively.
Future minimum payments under the Company’s leases for the three months ended June 30, 2017 are $13,261.
In addition, the Company utilizes public warehouse space for its inventory. Public storage expense for the three months ended March 31, 2017 and 2016 was $9,421 and $20,610, respectively.
NOTE 9 – MAJOR CUSTOMERS AND VENDORS
For the three months ended March 31, 2017 and 2016, two customers accounted for 35% and 10%, or 45% in the aggregate, and two customers accounted for 16% and 12%, or 28% in the aggregate, of the Company’s net sales, respectively
For the three months ended March 31, 2017 and 2016, two vendors accounted for 31% and 22%, or 53% in the aggregate, and four vendors accounted for 19%, 18%, 18% and 16%, or 71% in the aggregate, of purchases, respectively.
NOTE 10 - RELATED PARTIES
The Company recorded revenue related to sales to an entity owned by an immediate family member of Philip Thomas, CEO, stockholder, and member of the Board of Directors. Mr. Thomas is also an employee of this entity. For the three months ended March 31, 2017 and 2016, sales to this related party were $269 and $1,158, respectively. As of March 31, 2017 and December 31, 2016, there was $269 and $0, respectively, due from this related party which was included in accounts receivable in the condensed consolidated balance sheets. The Company also purchases product at cost, from this entity to supplement certain vending sales. For the three months ended March 31, 2017 and 2016, the Company purchased $3,342 and $8,258, respectively, of product from this entity. As of March 31, 2017 and December 31, 2016, the outstanding balance due to this entity included in accounts payable was $4,042 and $10,043, respectively.
On March 27, 2017, the Company issued an option to purchase 70,000 shares of the Company’s common stock to a member of the Board of Directors in connection with services provided to the Company beyond the Board of Director duties of this Director. As of March 31, 2017 and December 31, 2016 accounts payable and accrued expenses to a company wholly owned by this director’s company were $9,375 and $4,032, respectively.
NOTE 11 – SUBSEQUENT EVENTS
Long-Term Equity Incentive Plan
On April 14, 2017, the Company’s board of directors adopted the 2017 Long-Term Incentive Equity Plan (“2017 Stock Option Plan”). The 2017 Stock Option Plan provides for the grant of stock options, stock appreciation rights, restricted stock and other stock-based awards to, among others, the officers, directors, employees and consultants of the Company. The total number of shares reserved under the 2017 Stock Option Plan is 850,000.
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LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11 – SUBSEQUENT EVENTS (CONTINUED)
Option Issuance
On April 14, 2017, the Company’s issued options to purchase 127,500 shares of the Company’s common stock under the 2015 Stock Option Plan and 187,647 shares of the Company’s common stock under the 2017 Stock Option Plan to various employees.
Employment Agreement
On April 18, 2017, the Company entered into an employment agreement with Virginia Morris to serve as the Company’s Chief Sales & Marketing Officer. Ms. Morris’s primary responsibilities will be driving the growth agenda for the Company’s entire portfolio of brands and overseeing key sales and marketing functions including brand management, channel strategy development and execution, and product innovation. Pursuant to the employment agreement, Ms. Morris was awarded an option to purchase 27,500 shares of the Company’s common stock under the 2015 Stock Option Plan, and an additional option to purchase 42,500 shares of the Company’s common stock under the 2017 Stock Option Plan. The options have an exercise price of $4.50 and vest annually in three equal installments beginning on the date of grant. Ms. Morris was also awarded 25,000 shares of the Company’s common stock prior to the execution of her employment agreement for services provided to the Company.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this quarterly report to “we,” “us”, or “our” or to “our company” or “the Company” refer to Long Island Iced Tea Corp., a holding company, and its wholly owned subsidiaries, including Long Island Brand Beverages LLC (“LIBB”) and Cullen Agricultural Holding Corp. (“Cullen”).
The information disclosed in this quarterly report, and the information incorporated by reference herein, include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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. 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 contained are based on our current expectations and beliefs concerning future developments and their potential effects on us and speak only as of the date of such statement. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in this Item 2 of Part I of this quarterly report and in Item 1A of Part I of our annual report on Form 10-K filed on March 31, 2017. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
The following discussion should be read in conjunction with our condensed consolidated interim financial statements and footnotes thereto contained in this quarterly report.
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”) iced tea in the beverage industry. We are currently organized under its 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 iced tea offered at an affordable price.
We aspire to be a market leader in the development of iced tea 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 the less healthy options, such as carbonated soft drinks, towards alternative beverages such as iced tea.
We produce a 100% brewed 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, sweet tea and half tea and half lemonade. We also offer lower calorie iced tea in twelve (12) ounce bottles. The lower calorie flavor options include mango, raspberry and peach. We also sell the iced tea in gallon bottles with flavor options including lemon, peach, green tea and honey, sweet tea and mango. We also sell a private label version of its iced tea products. In addition, in order to service certain vending contracts, we sell snacks and other beverage products on a limited basis.
We distribute an aloe vera derived juice beverage (“ALO Juice”). During the three months ended March 31, 2017, the ALO Juice product accounted for approximately 36% of our condensed consolidated net sales.
On March 14, 2017, we announced that we are expanding our brand to include lemonade. Lemonade will be available in nine flavors and will be offered at retail in both single and 12-packs of 18oz bottles.
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 “CSD” towards alternative beverages such as iced tea.
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We also continually seek to better develop emerging markets, as well as expand our overall geographic footprint. We 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 2016, the Company announced new distributorships in Columbia, Honduras, Dominican Republic, St Martin and Bermuda to whom we shipped productduring the second quarter of 2017. We also worked alongside existing distributor partnerships in Puerto Rico, Canada and South Korea to further expand distribution points throughout their respective markets. Additional new 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.
We were incorporated on December 23, 2014 in the State of Delaware. Our corporate offices are located at 116 Charlotte Avenue, Hicksville, NY 11801 and our telephone number at that location is (855) 542-2832.
Recent Developments
January 2017 Offering
On January 30, 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, and is described in more detail in a prospectus supplement dated January 27, 2017 and the accompanying base prospectus dated October 14, 2016.
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 will 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 light-emitting diode (“LED”) branding, as well as digital and retail promotional opportunities. After a complete refurbishment, the venue reopened on April 5, 2017.
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 available at retail in both single and 12-packs of 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®. We expect that this product will be 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 with Big Geyser, a large independent non-alcoholic beverage distributor in metro New York. Big Geyser will be the exclusive distributor of our iced tea and lemonade 18oz bottle products. 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 also agreed to issue warrants to Big Geyser in the second quarter as compensation for achieving certain performance targets.
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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 months ended March 31, 2017:
| ● | Net sales. During the three months ended March 31, 2017, we had net sales of $1,113,337, an increase of $605,168 over the three months ended March 31, 2016. The increase is due to a combination of brand momentum and an increase in distribution, including an increase of $374,177 in sales of ALO Juice. The increase was also bolstered by an increase of $163,475 in the sale of the Company’s iced tea in 20oz bottles and an increase of $101,740 in the sale of iced tea in gallon sized containers. | |
| ● | Margin. Our gross margin percentage increased by 7% and our gross profit dollars increased by $121,542 for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. The increase was primarily due to an increase in the sale of ALO Juice products, which earned a margin of 19% and a gross profit of approximately $77,322 in 2017 and for which ALO Juice sales were minimal during the first quarter of 2016. The increase was also attributable to improvements in our 20 oz. iced tea product, for which our gross profit percentage increased by 8% and our gross profit increased by $47,571. | |
| ● | Operating expenses. During the three months ended March 31, 2017, our operating expenses were $3,508,017, representing an increase of $2,243,809 as compared to the three months ended March 31, 2016. The increase in operating expenses for the three months ended March 31, 2017 related primarily to increased payroll (including stock based compensation), Advisory Board and Board of Directors fees, professional fees and services, 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 three months ended March 31, 2017, our cash flows used in operating activities were $2,128,834, our net cash provided by investing activities was $861,644 and our net cash provided by financing activities was $136,114. We had working capital of $3,197,482 as of March 31, 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.
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 Item 1 of Part II of this Form 10-Q. 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. The Company’s 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. | |
| ● | We are exploring potential opportunities to expand our business to include alcoholic beverages. This expansion may require a substantial investment of resources and management time, and there are no assurances that our efforts will be successful. | |
| ● | Costs for our raw materials may increase substantially. |
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| ● | 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. |
Please refer to risks factors described in Item 1A of Part I of our annual report on Form 10-K filed on March 31, 2017.
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 the condensed consolidated financial statements included in this quarterly report), the following policies are the most critical.
Revenue Recognition
Revenue is stated net of sales discounts, rebates paid to customers 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
The Company participates 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. The Company believes that its 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, the Company may be required to occasionally pay fees to its customers (“Placement Fees”) in order to place its 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 the Company’s 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, the Company has cumulative negative sales with that particular customer, such negative sales are reclassified and recorded as a part of selling and marketing expense.
Accounts Receivable
The Company sells products to distributors and directly to retailers, and extends credit, generally without requiring collateral, based on its evaluation of the customer’s financial condition. Potential losses on the Company’s receivables are dependent on each individual customer’s financial condition and sales adjustments granted after the balance sheet date. The Company carries its trade accounts receivable at net realizable value. Typically, accounts receivable have terms of net 30 days and do not bear interest. The Company monitors its exposure to losses on receivables and maintains allowances for potential losses or adjustments. The Company determines these allowances by (1) evaluating the aging of its receivables; (2) analyzing its history of sales adjustments; and (3) reviewing its high-risk customers. Past due receivable balances are written off when the Company’s 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, the Company defers recognition of such accounts receivable until such recognition criteria are met.
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Inventories
The Company’s inventory includes raw materials such as bottles, sweeteners, labels, flavors and packaging. Finished goods inventory consists of bottled and packaged iced tea and ALO Juice. The Company values its 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 March 31, 2017 and December 31, 2016, was finished goods inventory with a cost of approximately $207,000 and $320,000, respectively that was delivered to a distributor, and is held in inventory until revenue recognition criteria are met.
Results of Operations
| For
the Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Net sales | $ | 1,113,337 | $ | 508,169 | ||||
| Cost of goods sold | 951,244 | 467,618 | ||||||
| Gross profit | 162,093 | 40,551 | ||||||
| Operating expenses: | ||||||||
| General and administrative expenses | 2,005,074 | 777,665 | ||||||
| Selling and marketing expenses | 1,502,943 | 486,543 | ||||||
| Total operating expenses | 3,508,017 | 1,264,208 | ||||||
| Operating Loss | (3,345,924 | ) | (1,223,657 | ) | ||||
| Other expenses: | ||||||||
| Other expense | (12,378 | ) | - | |||||
| Interest expense, net | (96,220 | ) | (193,413 | ) | ||||
| Net loss | $ | (3,454,522 | ) | $ | (1,417,070 | ) | ||
Comparison of the Three Months Ended March 31, 2017 and 2016
Net Sales and Gross Profit
Net sales for the three months ended March 31, 2017 increased by $605,168, or 119%, to $1,113,337 as compared to $508,169 for the three months ended March 31, 2016. The increase is due to a combination of iced tea brand momentum and an increase in distribution. The increase was bolstered by the sale of the Company’s ALO Juice product line. Net sales of our ALO Juice product during the three months ended March 31, 2017 increased by $374,177 and were $398,294 as compared to $24,117 for the three months ended March 31, 2016. The increase was also bolstered by an increase of $163,475 in the sale of the Company’s iced tea in 20oz bottles and an increase of $101,740 in the sale of iced tea in gallon sized containers.
Gross profit increased by $121,542, or 300%, to $162,093 for the three months ended March 31, 2017 from $40,551 for the three months ended March 31, 2016. Our gross profit percentage increased to approximately 15% for the three months ended March 31, 2017 as compared to approximately 8% for the three months ended March 31, 2016. The increase in gross profit percentage was due to (a) increased pricing for iced tea sold in both gallons and in 20oz bottles, (b) a decrease in costs for 20oz bottles and labels, (c) fewer rebates on the gallon product line, and (d) margin earned on the sale of the ALO Juice product line, which is essentially a new product for 2017, as compared to 2016.
General and administrative expenses
General and administrative expenses for the three months ended March 31, 2017 increased by $1,227,409, or 158%, to $2,005,074 as compared to $777,665 for the three months ended March 31, 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, our personnel costs increased by approximately $76,830 in connection with the hiring our executive chairman, chief financial officer and other supporting personnel. We incurred an increase of approximately $327,188 in stock-based compensation costs, an increase of approximately $13,250 in costs in connection with the compensation of our Board of Directors and Advisory Board, an increase in bad debt of approximately $249,094 and an increase of approximately $352,448 in the costs of being a public company, consisting principally of legal, accounting, filing and related 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 March 31, 2017 increased by $1,016,400, or 209%, to $1,502,943 as compared to $486,543 for the three months ended March 31, 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 $332,314 in connection with the hiring of additional sales and marketing. We incurred an increase of $162,800 in stock-based compensation costs. Our investor and public relations costs increased by $250,976. We incurred an increase of approximately $176,462 in connection with our new product initiatives and ALO Juice development.
Interest expense, net
Interest expense, net for the three months ended March 31, 2017 decreased by $97,193, or 50%, to $96,220 as compared to $193,413 for the three months ended March 31, 2016. Interest expense for the three months ended March 31, 2017, principally consisted of the amortization of deferred financing costs of $111,580. Interest expense was offset by interest and dividend income on investments of $17,135.
Liquidity and Capital Resources
Sources of Liquidity
We have most significantly financed our business through the sale of equity interests. We had working capital of $3,197,482 as of March 31, 2017. We believe that, as a result of proceeds from our recent common stock offerings, the commitment for financing from certain members of management and a stockholder and our working capital as of March 31, 2017, that our cash resources will be sufficient to fund our net cash requirements through May 15, 2018.
We also rely on debt to finance our business. The following table provides an overview of our borrowing agreements as of March 31, 2017:
| Description of Debt | Holder | Interest Rate | Balance
at March 31, 2017 | ||||||
| Line of Credit | Brentwood LIIT Inc. | Prime Plus 7.5 | % | $ | - | ||||
| UBS Credit Line | UBS Bank USA | LIBOR plus 2.5 | % | $ | - | ||||
| Automobile loans | Various | 3.59% to 10.74 | % | $ | 23,898 | ||||
| Equipment Loan Reimbursement Agreement | Magnum Vending Corp. | 10.0 | % | $ | 68,251 | ||||
In order to execute our long-term growth strategy, including the expansion of the business to include alcoholic beverages, we may need to continue to raise additional funds through private 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.
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 17.4% of our outstanding common stock as of March 31, 2017. The Credit Agreement provides for a revolving credit facility in an amount of up to $3,500,000, with funding subject to approval by Brentwood. As of March 31, 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 March 31, 2017, the interest rate on the UBS Credit Line was 3.483 %. The UBS Credit Line, when drawn, is collateralized by certain of our short-term investments. As of March 31, 2017 and December 31, 2016, the outstanding balance on the line of credit was $0 and $1,280,275, respectively. As of March 31, 2017 and December 31, 2016, our borrowing capacity under the UBS Credit line was $521,587 and $19,725, respectively.
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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 March 31, 2017 and December 31, 2016, $68,251 and $76,474, respectively, of principal and interest were outstanding under the agreement.
Private Placements
On January 30, 2017, we consummated the 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 total net proceeds, after payment of the placement agent fees and other offering expenses, of approximately $1,429,740.
Cash flows
Net cash used in operating activities
Net cash used in operating activities was $2,128,834 for the three months ended March 31, 2017 as compared to net cash used in operating activities of $896,492 for the three months ended March 31, 2016. Cash used in operating activities for the three months ended March 31, 2017 was primarily the result of a net loss of $3,454,522. The net loss was offset primarily by non-cash charges of $1,052,770, consisting principally of $630,230 of stock based compensation and $111,580 of amortization of deferred financing costs. The cash used in operating activities also increased on account of a $250,253 and $272,235 increase in accounts payable and accrued expenses, respectively, and an increase of $285,308 in accounts receivable. Cash used in operating activities for the three months ended March 31, 2016 was primarily the result of the net loss of $1,417,070.
Net cash used in investing activities
Net cash provided by investing activities was $861,644 for the three months ended March 31, 2017 as compared to $127,580 for the three months ended March 31, 2016. Net cash used in investing activities for the three months ended March 31, 2017 consisted principally of the proceeds from the sales of short-term investment securities of $803,946. Cash provided by investing activities for the three months ended March 31, 2016 resulted from the release of restricted cash of $127,580.
Net cash provided by financing activities
Net cash provided by financing activities was $136,114 for the three months ended March 31, 2017 as compared to net cash provided by financing activities of $924,574 for the three months ended March 31, 2016. Cash flows from financing activities were primarily the result of $1,429,740 representing the proceeds from our January 2017 Public Offering, net of costs. 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 three months ended March 31, 2016, was primarily due to $741,790 in net proceeds from an equity offering.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer (our principal executive) and Chief Financial Officer (our principal financial officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2017. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) were not effective as of March 31, 2017 due to a material weakness in our internal control over financial reporting as described below.
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A material weakness is defined within the Public Company Accounting Oversight Board’s Auditing Standard No. 5, as a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. We determined that our internal control over financial reporting had the following material weakness:
| ● | Due to the small size of the Company, the Company does not maintain sufficient segregation of duties to ensure the processing, review and authorization of all transactions including non-routine transactions. | |
| ● | Our processes lacked timely and complete reviews and analysis of information used to prepare our financial statements and disclosures in accordance with accounting principles generally accepted in the United States of America. |
Because disclosure controls and procedures include those components of internal control over financial reporting that provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, management determined that its disclosure controls and procedures were not effective as a result of the foregoing material weakness in its internal control over financial reporting. The Company is evaluating this weakness to determine the appropriate remedy.
Changes in Internal Control over Financial Reporting
During the quarter ended March 31, 2017, the Company’s full-time Controller has instituted additional procedures that provide for enhanced reviews and analysis of financial schedules used to prepare financial statements and disclosures. There have been no other changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during the current fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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We are involved in various claims and legal actions arising from time to time in the ordinary course of business. In the opinion of our management, the ultimate disposition of these matters in the ordinary course of business will not have a material adverse effect on our financial position, results of operations or cash flows.
In addition, we are involved in the following legal action:
| ● | Revolution Marketing, LLC. On August 1, 2014, an action was filed by LIBB in the Supreme Court in the State of New York entitled Long Island Brand Beverages LLC v. Revolution Marketing, LLC and Ascent Talent, Model Promotion Ltd. LIBB is seeking damages of $10,000,000 for several claims including breach of contract and fraud occurring during 2014. Revolution has filed a counterclaim for breach of contract and related causes of action, claiming damages in the sum of $310,880, and seeking punitive damages of $5,000,000. Ascent has filed a pre-answer motion to dismiss LIBB’s complaint. LIBB filed papers in opposition to the motion to dismiss. In addition, Revolution has filed a motion to amend its answer to include cross-claims against Ascent which were not asserted in its original answer of record. On February 5, 2016, the Court rendered a decision, denying the motion to dismiss with the exception of two claims which the Court dismissed. In the same decision, the Court granted a separate motion filed by Revolution seeking to amend its answer to include cross claims against Ascent. Our management and legal counsel believe it is too early to determine the probable outcome of this matter. |
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| (a) | Exhibits: |
| Exhibit No. | Description | |
| 10.1 | Form of Amended Employment Agreement between Long Island Iced Tea Corp. and Philip Thomas. | |
| 31.1 | Section 302 Certification by Chief Executive Officer. | |
| 31.2 | Section 302 Certification by Chief Accounting Officer. | |
| 32 | Section 906 Certification by Chief Executive Officer and Chief Accounting Officer. | |
| 101 | Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2016, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statement of Changes in Stockholders’ Equity, (iv) Condensed Consolidated Statement of Cash Flows and (v) Notes to Unaudited Condensed Consolidated Financial Statements, as blocks of text and in detail. | |
| 101.INS | XBRL Instance Document. | |
| 101.SCH | XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
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In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 12, 2017
| LONG ISLAND ICED TEA CORP. | ||
| By: | /s/ Richard Allen | |
| Name: | Richard Allen | |
| Title: | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |
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Exhibit 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), dated as of March 10, 2017, between LONG ISLAND ICED TEA CORP., a Delaware corporation having its principal office at 116 Charlotte Avenue, Hicksville, NY 11801 (“Company”), and PHILIP THOMAS, residing at the address on file with the Company (“Executive”).
WHEREAS, the Company and Executive are party to that certain Employment Agreement, dated as of May 27, 2015 (the “Original Agreement”), pursuant to which Executive is currently employed as Chief Executive Officer of the Company; and
WHEREAS, the Company and Executive desire to amend and restate the Original Agreement on the terms, conditions and provisions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants and conditions set forth herein and the performance of each, the parties hereby agree as follows:
1. Employment, Duties and Acceptance.
1.1. General. During the Term (as defined in Section 2), the Company shall employ Executive in the position of Chief Executive Officer of the Company and such other positions as shall be given to Executive by the Board of Directors of the Company (the “Board”). The Company also shall cause Executive to be appointed to comparable offices at the Company’s subsidiaries. All of Executive’s powers and authority in any capacity shall at all times be subject to the direction and control of the Board. The Board may assign to Executive such management and supervisory responsibilities and executive duties for the Company or any subsidiary of the Company, including serving as an executive officer and/or director of any subsidiary, as are consistent with Executive’s then current status and position with the Company. The Executive’s duties shall be similar to those customarily performed by comparable officers of similar companies. Without limiting the foregoing, the Company and Executive acknowledge that Executive’s primary functions and duties shall include working with the board of directors to define long-term strategic initiatives; ensuring that directives from the Board of Directors are implemented to achieve the Company’s revenue and profitability goals and to maximize long term shareholder value; and overseeing the operations of the Company and its subsidiaries.
1.2. Full-Time Position. Executive accepts such employment and agrees to devote substantially all of his business time, energies and attention to the performance of his duties hereunder. Executive shall not serve as a consultant to, or on boards of directors of, or in any other capacity to other companies, for profit and not for profit, without the prior consent of the Board. Nothing herein shall be construed as preventing Executive from making and supervising personal investments, provided they will not interfere with the performance of Executive’s duties hereunder or violate the provisions of Section 5.4 hereof.
1.3. Location. Executive will perform his duties in or around Hicksville, New York. Executive shall undertake such occasional travel, within or outside the United States, as is reasonably necessary in the interests of the Company.
2. Term. The term of Executive’s employment hereunder shall commence on the date hereof and shall continue until December 31, 2019 (“Term”) unless terminated earlier as hereinafter provided, or unless extended by mutual written agreement of the Company and Executive. Unless the Company and Executive have otherwise agreed in writing, if Executive continues to work for the Company after the expiration of the Term, his employment thereafter shall be under the same terms and conditions provided for in this Agreement, except that his employment will be on an “at will” basis and the provisions of Sections 4.4 and 4.6(c) shall no longer be in effect.
3. Compensation and Benefits.
3.1. Salary. The Company shall pay to Executive a salary (“Base Salary”) at the annual rate of $250,000. The Base Salary shall be applied retroactively from January 1, 2017. Executive’s compensation shall be paid in equal, periodic installments in accordance with the Company’s normal payroll procedures; provided, however, that the first such payment shall include an amount equal to the difference between the amount Executive was actually paid for services provided between January 1, 2017 and the date of such payment and the amount Executive would have been paid if the Base Salary provided hereunder had been in effect for all of such period.
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3.2. Bonus. The Company shall pay to Executive a lump sum cash bonus of $83,000 promptly after the date hereof; provided that, the Executive shall repay such cash bonus if, prior to December 31, 2017, Executive terminates his employment without Good Reason (as defined below) or is terminated by the Company for Cause (as defined below).
3.3. Incentives. Executive shall be eligible to be paid incentive bonuses (“Incentive Bonuses”) from time to time based on Executive achieving performance goals for Executive and the Company as established by the Compensation Committee of the Board (“Committee”) in its sole discretion. The Incentive Bonus (if any) will be paid in cash, stock and/or stock-based awards as per the recommendation of the Committee.
3.4. Stock Options.
(a) Subject to approval by the Committee, the Company shall grant Executive an option (“Option”) to purchase 75,000 shares of the Company’s Common Stock under the Company’s 2015 Long-Term Incentive Equity Plan, at an exercise price equal to the greater of $4.50 and the Fair Market Value (as defined in the Plan) on the date of grant, with one-third of such Option vesting immediately and the remaining two-thirds vesting in two equal portions on the first and second anniversary of the grant date. The duration of the Option shall be for a five-year period from the grant date.
(b) If the Executive’s title is changed from Chief Executive Officer of the Company to Chief Innovation Officer or Head of Business Development of the Company, at such time, subject to and conditional upon approval by the Committee, the Company will grant Executive an award under the Company’s 2015 Long-Term Incentive Equity Plan commensurate with appropriate and market benchmarked Head of Business Development or Chief Innovation Officer remuneration.
3.5. Benefits. Executive shall be entitled to such medical, life, disability and other benefits as are generally afforded to other executives of the Company, subject to applicable waiting periods and other conditions, as well as participation in all other company-wide employee benefits, including a defined contribution pension plan and 401(k) plan, as may be made available generally to executive employees from time to time. In lieu of medical insurance provided by the Company, Executive may request by way of substitution the sum of up to $1,500 per month for the reimbursement of Executive’s out-of-pocket costs for medical insurance for Executive and his family.
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3.6. Vacation and Sick Days. Executive shall be entitled to twenty (20) days of paid vacation and five (5) days of paid sick days in each year during the Term and to a reasonable number of other days off for religious and personal reasons in accordance with customary Company policy.
3.7. Expenses. The Company shall pay or reimburse Executive for all transportation, hotel and other expenses reasonably incurred by Executive on business trips and for all other ordinary and reasonable out-of-pocket expenses actually incurred by him in the conduct of the business of the Company against itemized vouchers submitted with respect to any such expenses and approved in accordance with customary procedures.
3.8. Automobile. The Company shall provide Executive with a suitable leased automobile for business use and shall pay for all other costs associated with the use of the vehicle, including insurance costs, repairs and maintenance. The Company shall not be required to expend more than $500 per month for the costs of leasing such automobile. The costs associated with Executive’s automobile shall be considered taxable income to Executive, except to the extent that it is documented to have been used by him for business purposes.
4. Termination.
4.1. Death. If Executive dies during the Term, Executive’s employment hereunder shall terminate and the Company shall pay to Executive’s estate the amount set forth in Section 4.6(a).
4.2. Disability. The Company, by written notice to Executive, may terminate Executive’s employment hereunder if Executive shall fail because of illness or incapacity to render services of the character contemplated by this Agreement for six (6) consecutive months. Upon such termination, the Company shall pay to Executive the amount set forth in Section 4.6(a).
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4.3. By Company for Cause. The Company, by written notice to Executive, may terminate Executive’s employment hereunder for Cause. As used herein, “Cause” shall mean: (a) the refusal or failure by Executive to carry out specific directions of the Board or, if Executive is not the Chief Executive Officer at the time of termination, of the Chief Executive Officer, which are of a material nature and consistent with his then current status and position, or the refusal or failure by Executive to perform a material part of Executive’s duties hereunder; (b) the commission by Executive of a material breach of any of the provisions of this Agreement; (c) fraud or dishonest action by Executive in his relations with the Company or any of its subsidiaries or affiliates (“dishonest” for these purposes shall mean Executive’s knowingly or recklessly making of a material misstatement or omission for his personal benefit); or (d) the conviction of Executive of a felony under federal or state law. Notwithstanding the foregoing, no Cause for termination shall be deemed to exist with respect to Executive’s acts described in clauses (a) or (b) above, unless the Company shall have given written notice to Executive within a period not to exceed ten (10) calendar days of the initial existence of the occurrence, specifying the Cause with reasonable particularity and, within thirty (30) calendar days after such notice, Executive shall not have cured or eliminated the problem or thing giving rise to such Cause; provided, however, no more than two cure periods need be provided during any twelve-month period. Upon such termination, the Company shall pay to Executive the amount set forth in Section 4.6(b). The Company shall also pay such amount to Executive upon his termination of employment without Good Reason, which Executive shall have the right to do on at least thirty (30) days written notice to the Company.
4.4. By Executive for Good Reason. The Executive, by written notice to the Company, may terminate Executive’s employment hereunder if a Good Reason exists. For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following circumstances without the Executive’s prior written consent: (a) a substantial and material adverse change in the nature of Executive’s title, duties and/or responsibilities with the Company that represents a demotion from his title, duties or responsibilities as in effect immediately prior to such change (such change, a “Demotion”); (b) material breach of this Agreement by the Company; (c) a failure by the Company to make any payment to Executive when due, unless the payment is not material and is being contested by the Company, in good faith; or (d) a liquidation, bankruptcy or receivership of the Company. Notwithstanding the foregoing, no Good Reason shall be deemed to exist (A) if Executive’s title is changed from Chief Executive Officer of the Company to Chief Innovation Officer or Head of Business Development of the Company and Executive retains duties and responsibilities substantially similar to those assigned to similar officers at comparable companies; and (B) with respect to the Company’s acts described in clauses (a), (b) or (c) above, unless Executive shall have given written notice to the Company within a period not to exceed ten (10) calendar days of the Executive’s knowledge of the initial existence of the occurrence, specifying the Good Reason with reasonable particularity and, within thirty (30) calendar days after such notice, the Company shall not have cured or eliminated the problem or thing giving rise to such Good Reason; provided, however, that no more than two cure periods shall be provided during any twelve-month period of a breach of clauses (a), (b) or (c) above. Upon such termination, the Company shall pay to Executive the amount set forth in Section 4.6(c).
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4.5. By Company Without Cause. The Company may terminate Executive’s employment hereunder without Cause by giving at least thirty (30) days written notice to Executive. Upon such termination, the Company shall pay to Executive the amount set forth in Section 4.6(c).
4.6. Compensation Upon Termination. In the event that Executive’s employment hereunder is terminated, the Company shall pay to Executive the following compensation:
(a) Payment Upon Death or Disability. In the event that Executive’s employment is terminated pursuant to Sections 4.1 or 4.2, the Company shall no longer be under any obligation to Executive or his legal representatives pursuant to this Agreement except for: (i) the Base Salary due Executive pursuant to Section 3.1 hereof through the date of termination; (ii) all valid expense reimbursements; (iii) all accrued but unused vacation pay; and (iv) all earned and previously approved but unpaid Incentive Bonuses.
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(b) Payment Upon Termination by the Company For Cause or by Executive Without Good Reason. In the event that the Company terminates Executive’s employment hereunder pursuant to Section 4.3, the Company shall have no further obligations to the Executive hereunder, except for: (i) the Base Salary due Executive pursuant to Section 3.1 hereof through the date of termination; (ii) all valid expense reimbursements; and (iii) all unused vacation pay through the date of termination required by law to be paid.
(c) Payment Upon Termination by Company Without Cause or by Executive for Good Reason. In the event that Executive’s employment is terminated pursuant to Sections 4.4 or 4.5, the Company shall have no further obligations to Executive hereunder except for: (i) the Base Salary due Executive pursuant to Section 3.1 hereof through the date of termination; (ii) the Base Salary at the applicable annual rate as of the date of termination for nine (9) months commencing on the date of termination or until the end of the Term, whichever is earlier, payable in accordance with Section 3.1, subject to the Executive executing a general release in favor of the Company; (iii) all valid expense reimbursements; (iv) all accrued but unused vacation pay; and (v) all earned and previously approved but unpaid Incentive Bonuses.
(d) No Duty to Mitigate. Executive shall have no duty to mitigate awards paid or payable to him pursuant to this Agreement, and any compensation paid or payable to Executive from sources other than the Company will not offset or terminate the Company’s obligation to pay to Executive the full amounts pursuant to this Agreement.
5. Protection of Confidential Information; Non-Competition.
5.1. Acknowledgment. Executive acknowledges that:
(a) As a result of his employment with the Company, Executive has obtained and will obtain secret and confidential information concerning the business of the Company, including, without limitation, financial information, proprietary rights, trade secrets and “know-how,” customers and sources (“Confidential Information”).
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(b) The Company will suffer substantial damage which will be difficult to compute if, during the period of his employment with the Company or thereafter, Executive should enter a business competitive with the Company or divulge trade secrets or other Confidential Information.
(c) The provisions of this Agreement are reasonable and necessary to protect the business of the Company, to protect the Company’s trade secrets and Confidential Information and to prevent loss to a competitor of an employee whose services are special, unique and extraordinary.
5.2. Confidentiality. Executive agrees that he will not at any time, during the Term or thereafter, divulge to any person or entity or use any Confidential Information obtained or learned by him as a result of his employment with the Company, except (i) in the course of performing his duties hereunder, (ii) with the Company’s prior written consent; (iii) to the extent that any such information is in the public domain other than as a result of Executive’s breach of any of his obligations hereunder; or (iv) where required to be disclosed by court order, subpoena or other government process. If Executive shall be required to make disclosure pursuant to the provisions of clause (iv) of the preceding sentence, Executive promptly, but in no event more than 48 hours after learning of such subpoena, court order, or other government process, shall notify, confirmed by mail, the Company and, at the Company’s expense, Executive shall: (a) take all reasonably necessary and lawful steps required by the Company to defend against the enforcement of such subpoena, court order or other government process, and (b) permit the Company to intervene and participate with counsel of its choice in any proceeding relating to the enforcement thereof.
5.3. Documents. Upon termination of his employment with the Company, Executive will promptly deliver to the Company all memoranda, notes, records, reports, manuals, drawings, blueprints and other documents (and all copies thereof) relating to the business of the Company and all property associated therewith, which he may then possess or have under his control; provided, however, that Executive shall be entitled to retain copies of such documents reasonably necessary to document his financial relationship with the Company.
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5.4. Non-Competition. For and in consideration of the good and valuable merger consideration received by Executive pursuant to the Agreement and Plan of Reorganization, dated as December 31, 2014, as amended as of April 23, 2015, by and among Cullen Agricultural Holding Corp., the Company, Cullen Merger Sub, Inc., LIBB Acquisition Sub, LLC, Long Island Brand Beverages LLC and Executive and Thomas Panza, and for and in consideration of the good and valuable consideration offered to the Executive hereunder, Executive hereby agrees that he shall not, during the period of his employment by or with the Company and for the Applicable Period (as defined below), for himself or on behalf of, or in conjunction with, any other person, persons, company, partnership, limited liability company, corporation or business of whatever nature:
(a) engage, as an officer, director, manager, member, shareholder, owner, partner, joint venturer, trustee, or in a managerial capacity, whether as an employee, independent contractor, agent, consultant or advisor, or as a sales representative, in an entity that designs, researches, develops, markets, sells or licenses products or services that are substantially similar to or competitive with the business of the Company that is located within seventy-five (75) miles of any market in which Company currently operates or has plans to do business in at the time of termination;
(b) call upon any person who is at that time, or within the preceding twenty-four (24) months has been, an employee of the Company, for the purpose, or with the intent, of enticing such employee away from, or out of, the employ of the Company or for the purpose of hiring such person for Executive or any other person or entity, unless any such person was terminated by the Company more than six (6) months prior thereto;
(c) call upon any person who, or entity that is then or that has been within one year prior to that time, a customer of the Company, for the purpose of soliciting or selling products or services in competition with the Company; or
(d) call upon any prospective acquisition or investment candidate, on the Executive’s own behalf or on behalf of any other person or entity, which candidate was known by Executive to have, within the previous twenty-four (24) months, been called upon by the Company or for which the Company made an acquisition or investment analysis or contemplated a joint marketing or joint venture arrangement with, for the purpose of acquiring or investing or enticing such entity into a joint marketing or joint venture arrangement.
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5.5. Injunctive Relief. If Executive commits a breach, or threatens to commit a breach, of any of the provisions of Section 5.2 or 5.4, the Company shall have the right and remedy to seek to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed by Executive that the services being rendered hereunder to the Company are of a special, unique and extraordinary character and that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. The rights and remedies enumerated in this Section 5.5 shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or equity. In connection with any legal action or proceeding arising out of or relating to this Agreement, the prevailing party in such action or proceeding shall be entitled to be reimbursed by the other party for the reasonable attorneys’ fees and costs incurred by the prevailing party.
5.6. Modification. If any provision of Section 5.2 or 5.4 is held to be unenforceable because of the scope, duration or area of its applicability, the tribunal making such determination shall have the power to modify such scope, duration, or area, or all of them, and such provision or provisions shall then be applicable in such modified form.
5.7. Definitions. For purposes of this Section 5:
(a) the term “Company” shall be deemed to include the Company and any of its subsidiaries; and
(b) the term “Applicable Period” shall mean the period commencing upon the termination of Executive’s employment hereunder and ending on the later of (i) May 27, 2017 and (ii) one (1) year after the termination of Executive’s employment hereunder.
5.8. Survival. The provisions of this Section 5 shall survive the termination of this Agreement for any reason, except in the event Executive is terminated by the Company without Cause, or if Executive terminates this Agreement with Good Reason, in either of which events, clause (a) of Section 5.4 shall be null and void and of no further force or effect. The non-renewal of this Agreement at the end of the Term shall not be deemed a termination by the Company without Cause.
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6. Miscellaneous Provisions.
6.1. Notices. All notices provided for in this Agreement shall be in writing, and shall be deemed to have been duly given when (i) delivered personally to the party to receive the same, or (ii) when mailed first class postage prepaid, by certified mail, return receipt requested, addressed to the party to receive the same at his or its address set forth below, or such other address as the party to receive the same shall have specified by written notice given in the manner provided for in this Section 6.1. All notices shall be deemed to have been given as of the date of personal delivery or mailing thereof.
If to Executive, to his address on file with the Company.
If to the Company:
Long Island Iced Tea Corp.
116 Charlotte Avenue
Hicksville, New York 11801
Attention: Executive Chairman
With a copy in either case to:
Graubard Miller
The Chrysler Building
405 Lexington Avenue, 11th Floor
New York, New York 10174
Attention: David Alan Miller, Esq.; Jeffrey M. Gallant, Esq.
6.2. Entire Agreement; Waiver. This Agreement sets forth the entire agreement of the parties relating to the employment of Executive and is intended to supersede all prior negotiations, understandings and agreements. No provisions of this Agreement may be waived or changed except by a writing by the party against whom such waiver or change is sought to be enforced. The failure of any party to require performance of any provision hereof or thereof shall in no manner affect the right at a later time to enforce such provision.
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6.3. Governing Law. All questions with respect to the construction of this Agreement, and the rights and obligations of the parties hereunder, shall be determined in accordance with the law of the State of New York applicable to agreements made and to be performed entirely in New York.
6.4. Binding Effect; Nonassignability. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company. This Agreement shall not be assignable by Executive, but shall inure to the benefit of and be binding upon Executive’s heirs and legal representatives.
6.5. Severability. Should any provision of this Agreement become legally unenforceable, no other provision of this Agreement shall be affected, and this Agreement shall continue as if the Agreement had been executed absent the unenforceable provision.
6.6. Section 409A. This Agreement is intended to comply with the provisions of Section 409A of the Internal Revenue Code (“Section 409A”). To the extent that any payments and/or benefits provided hereunder are not considered compliant with Section 409A, the parties agree that the Company shall take all actions necessary to make such payments and/or benefits become compliant.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.
| Date: March 9, 2017 | /s/ Richard Allen |
| Richard Allen | |
| Chief
Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
| Date: March 9, 2017 | /s/ Philip Thomas |
| Philip Thomas | |
| Director
and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.1
FORM OF CERTIFICATION
PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
CERTIFICATIONS
I, Philip Thomas, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Long Island Iced Tea Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 12, 2017 | /s/ Philip Thomas |
| Philip Thomas | |
| Director and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
FORM OF CERTIFICATION
PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
CERTIFICATIONS
I, Richard Allen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Long Island Iced Tea Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 12, 2017 | /s/ Richard Allen |
| Richard Allen | |
| Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Long Island Iced Tea Corp. on Form 10-Q for the quarterly period ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
Dated: May 12, 2017
| By: | /s/ Philip Thomas | |
| Name: | Philip Thomas | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
Dated: May 12, 2017
| By: | /s/ Richard Allen | |
| Name: | Richard Allen | |
| Title: | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Document And Entity Information - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2017 |
May 12, 2017 |
|
| Document And Entity Information [Abstract] | ||
| Entity Registrant Name | Long Island Iced Tea Corp. | |
| Entity Central Index Key | 0001629261 | |
| Document Type | 10-Q | |
| Document Period End Date | Mar. 31, 2017 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Common Stock, Shares Outstanding | 8,383,066 | |
| Trading Symbol | LTEA | |
| Document Fiscal Period Focus | Q1 | |
| Document Fiscal Year Focus | 2017 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
| Preferred stock, shares issued | ||
| Preferred stock, shares outstanding | ||
| Common stock, par value | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized | 35,000,000 | 35,000,000 |
| Common stock, shares, issued | 8,358,066 | 7,715,306 |
| Common stock, shares, outstanding | 8,358,066 | 7,715,306 |
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
| Income Statement [Abstract] | ||
| Net sales | $ 1,113,337 | $ 508,169 |
| Cost of goods sold | 951,244 | 467,618 |
| Gross profit | 162,093 | 40,551 |
| Operating expenses: | ||
| General and administrative expenses | 2,005,074 | 777,665 |
| Selling and marketing expenses | 1,502,943 | 486,543 |
| Total operating expenses | 3,508,017 | 1,264,208 |
| Operating loss | (3,345,924) | (1,223,657) |
| Other expenses: | ||
| Other expense | (12,378) | |
| Interest expense, net | (96,220) | (193,413) |
| Total other expenses | (108,598) | (193,413) |
| Net loss | (3,454,522) | (1,417,070) |
| Unrealized gain on investments | 12,197 | |
| Comprehensive loss | $ (3,442,325) | $ (1,417,070) |
| Weighted average number of common shares outstanding – basic and diluted | 8,073,559 | 4,720,929 |
| Basic and diluted net loss per share | $ (0.43) | $ (0.30) |
Business Organization, Liquidity and Management's Plans |
3 Months Ended |
|---|---|
Mar. 31, 2017 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Business Organization, Liquidity and Management's Plans |
NOTE 1 – BUSINESS ORGANIZATION, LIQUIDITY AND MANAGEMENT’S PLANS
Business Organization
Long Island Iced Tea Corp, a Delaware corporation (“LIIT”), was formed on December 23, 2014. LIIT was formed in order to allow for the completion of mergers between Cullen Agricultural Holding Corp. (“Cullen”) and Long Island Brand Beverages LLC (“LIBB”). On December 31, 2014, LIIT entered into a merger agreement, as amended as of April 23, 2015, with Cullen, a public company, Cullen Merger Sub, Inc. (“Cullen Merger Sub”), LIBB Acquisition Sub, LLC (“LIBB Merger Sub”), LIBB and the founders of LIBB (“Founders”). Pursuant to the merger agreement, (a) Cullen Merger Sub was merged with and into Cullen, with Cullen surviving and becoming a wholly-owned subsidiary of LIIT and (b) LIBB Merger Sub was merged with and into LIBB, with LIBB surviving and becoming a wholly-owned subsidiary of LIIT (the “Mergers”). As a result of the Mergers which were consummated on May 27, 2015, LIIT consisted of its wholly owned subsidiaries, LIBB (its operating subsidiary) and Cullen and Cullen’s wholly owned subsidiaries (collectively the “Company”).
Under the merger agreement, upon consummation of the Mergers, the former holders of the LIBB membership interests (the “LIBB members”) received 2,633,334 shares of common stock of LIIT (or approximately 63%).
For accounting purposes, the Mergers were treated as an acquisition of Cullen by LIBB and as a recapitalization of LIBB, as the former LIBB members held a large percentage of LIIT’s shares and exercised significant influence over the operating and financial policies of the consolidated entity and Cullen was a public shell company at the time of the transaction. Pursuant to Accounting Standards Codification (“ASC”) 805-10-55-11 through 55-15, the merger or acquisition of a private operating company into a non-operating public shell with nominal assets is considered a capital transaction in substance rather than a business combination. As a result, the condensed consolidated balance sheets, statements of operations, and statements of cash flows of LIBB have been retroactively updated to reflect the recapitalization. Additionally, the historical condensed consolidated financial statements of LIBB are now reflected as those of the Company.
Overview
The Company is a holding company operating through its wholly-owned subsidiary, LIBB. The Company is engaged in the production and distribution of premium Non-Alcoholic ready-to-drink (“NARTD”) iced tea in the beverage industry. The Company is currently organized under its flagship brand, Long Island Iced Tea, a premium NARTD tea made from a proprietary recipe and with quality components. The Company’s mission is to provide consumers with premium iced tea offered at an affordable price.
The Company aspires to be a market leader in the development of iced tea beverages that are convenient and appealing to consumers. There are two major target markets for Long Island Iced Tea: “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 the less healthy options, such as carbonated soft drinks, towards alternative beverages such as iced tea.
The Company produces a 100% brewed 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, sweet tea and half tea and half lemonade. The Company also offers lower calorie iced tea in twelve (12) ounce bottles. The lower calorie flavor options include mango, raspberry and peach. The Company also sells its iced tea in gallon bottles with flavor options including lemon, peach, green tea and honey, sweet tea and mango. The company also sells a private label version of its iced tea products. In addition, in order to service certain vending contracts, the Company sells snacks and other beverage products on a limited basis.
The Company distributes an aloe vera derived juice beverage (“ALO Juice”). During the three months ended March 31, 2017, the Company’s ALO Juice product accounted for approximately 36% of its condensed consolidated net sales.
On March 14, 2017, the Company announced that it is expanding its brand to include lemonade. Lemonade will be offered in nine flavors and will be offered at retail in both single and 12-packs of 18oz bottles.
The Company sells its 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, Nevada, Rhode Island and parts of the Midwest. As of March 31, 2017, the Company’s products are available in 27 states and in Canada and Latin America.
Asset Purchase Agreement
On December 8, 2016, the Company entered into an asset purchase agreement with The Wilnah International, LLC (“Wilnah”). Pursuant to the agreement, the Company will acquire the intellectual property (“IP”) (trade names, formulas, recipes) for ALO Juice. Upon the closing, the Company will issue to Wilnah 5,000 shares of its common stock. The closing of the transaction is expected to occur in the second quarter of 2017. Separately, the Company has entered into an employment agreement with Julio X. Ponce, majority interest member of Wilnah, to expand the Company’s sales of ALO Juice products within the Southeast U.S. and Latin American regions.
Liquidity and Management’s Plan
The Company has been focused on the development of its brand and its infrastructure, as well as in the establishment of a network of distributors and qualified direct accounts. From inception, the Company has financed its operations through the issuance of debt and equity, and through utilizing trade credit with its vendors.
As of March 31, 2017, the Company had cash of $118,474 and short term investments of $1,602,655. As of March 31, 2017, the Company had working capital of $3,197,482. The Company incurred net losses of $3,454,522 and $1,417,070 for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, the Company’s stockholders’ equity was $4,132,689.
Pursuant to a Credit and Security Agreement (the “Credit Agreement”), the Company has a revolving credit facility in an amount up to $3,500,000, subject to approval by the lender (See Note 5).
On January 27, 2017, the Company sold 376,340 shares of the Company’s common stock in a public offering at an average price of $4.02 per share. Of the shares sold, 300,000 were sold to the public at an offering price of $4.00 while the remaining 76,340 shares were sold to officers and directors of the Company at a price of $4.10 per share. The sale of common stock generated gross proceeds of $1,513,000 and net proceeds of $1,429,740 after deducting commissions and other offering expenses.
The Company believes that as a result of the commitment for financing from certain members of management and a stockholder and its working capital as of March 31, 2017, its cash resources will be sufficient to fund the Company’s net cash requirements through May 15, 2018. However, in order to execute the Company’s long-term growth strategy, the Company may need to raise additional funds through private equity offerings, debt financings, or other means. On May 12, 2017, the Company received a commitment letter from certain members of management and a stockholder committing to fund any cash deficit required to sustain the operations of the Company through May 15, 2018. There are no assurances that the Company will be able to raise such funds on terms that would be acceptable to the Company.
In consideration for a prior commitment for financing the Company through March 31, 2018 from a stockholder, on March 29, 2017, the Company’s Board of Directors issued to this stockholder a warrant to purchase 165,000 shares of the Company’s common stock at an exercise price of $4.18 per share. This warrant has a term of one year and was fully vested upon issuance. The option had a grant date fair value of $172,526, which was fully charged to general and administrative expense during the three months ended March 31, 2017. The fair value of the warrant was determined utilizing the Black-Scholes option pricing model, based upon a common stock price of $4.00 per share, dividend yield of 0%, expected volatility of 70%, risk free interest rate of 1.00%, and an expected life in years of 1.00.
In consideration for the May 12, 2017 commitment for financing the Company through May 15, 2018 from a stockholder, on May 12, 2017, the Company’s Board of Directors issued to this stockholder a warrant to purchase 20,000 shares of the Company’s common stock at an exercise price of $4.90 per share. This warrant has a term of one year and was fully vested upon issuance. |
Summary of Significant Accounting Policies |
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| Summary of Significant Accounting Policies |
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2016 and related notes thereto included in the Company’s Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on March 30, 2017.
Reclassification
Certain amounts in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no effect on the previously reported net loss.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and also affect the amounts of revenues and expenses reported for each period. Actual results could differ from those which result from using such estimates. Management utilizes various other estimates, including but not limited to, assessing the collectability of accounts receivable, accrual of rebates to customers, the valuation of securities, the valuation of inventory, determining the estimated lives of long-lived assets, determining the potential impairment of intangibles, the fair value of warrants issued, the fair value of stock options, and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary.
Revenue Recognition
Revenue is stated net of sales discounts and rebates paid to customers (See Customer Marketing Programs and Sales Incentives, below). Net sales are recognized when all of the following conditions are met: (1) the price is fixed and determinable; (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 and accounts receivable until such recognition criteria are met.
Customer Marketing Programs and Sales Incentives
The Company participates 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 various discounts to the end retailers or for participating in specific marketing programs. The Company believes that its participation in these programs is essential to ensuring volume and revenue growth in a competitive marketplace. During the three months ended March 31, 2017, an adjustment to these allowances resulted in an increase of $9,144 in net sales. During the three months ended March 31, 2016, these allowances resulted in a reduction in net sales of $45,165.
Shipping and Handling Costs
Shipping and handling costs incurred to move finished goods from the Company’s sales distribution centers to customer locations are included in selling and marketing expenses within the condensed consolidated statements of operations and totaled $25,290 and $40,152, for the three months ended March 31, 2017 and 2016, respectively.
Advertising
The Company expenses advertising costs as incurred. Advertising costs are included in selling and marketing expenses within the condensed consolidated statements of operations and totaled $51,642 and $9,631 for the three months ended March 31, 2017 and 2016, respectively.
Research and Development
Costs related to new product initiatives incurred during the three months ended March 31, 2017 and 2016 were $176,862 and $400, respectively, and were included in selling and marketing expenses. Other research and development costs were $829 and $46,667 for the three months ended March 31, 2017 and 2016, respectively and were included in general and administrative expenses. The expenses incurred during the three months ended March 31, 2016 were incurred pursuant to a product development agreement which will require the Company to pay $40,000 in cash and $40,000 in common stock upon the completion of the arrangement. As of March 31, 2017, $50,000 was included in accrued expenses in the condensed consolidated balance sheet related to the 2016 arrangement.
Short-term Investment
The Company accounts for securities in accordance with accounting standards for investments in debt and equity securities. Accounting standards require investments in debt and equity securities to be classified as either “held to maturity”, “trading”, or “available-for-sale.”
The Company holds investments in marketable securities, consisting of U.S. government securities and mutual funds. The Company’s available-for-sale securities are carried at estimated fair value with any unrealized gains and losses, net of taxes, included in accumulated other comprehensive (loss) income in stockholders’ equity when applicable. During the three months ended March 31, 2017 and 2016, the unrealized gain was $12,197 and $0, respectively. Unrealized losses are charged against interest and other income/(expense), net, when a decline in fair value is determined to be other-than-temporary. The Company has not recorded any such impairment charge in the periods presented. The Company determines realized gains or losses on sale of marketable securities on a specific identification method, and records such gains or losses as interest and other income/(expense), net.
The following table sets forth the available-for-sale securities:
Short-term investments included the following securities with gross unrealized gains/losses included in other comprehensive loss:
The following table classifies the US Government Securities by maturity:
Accounts Receivable
The Company sells products to distributors and in certain cases directly to retailers, and extends credit, generally without requiring collateral, based on its evaluation of the customer’s financial condition. While the Company has a concentration of credit risk in the retail sector, it believes this risk is mitigated due to the diverse nature of the customers it serves, including, but not limited to, its type, geographic location, size, and beverage channel. Potential losses on the Company’s receivables are dependent on each individual customer’s financial condition and sales adjustments granted after the balance sheet date. The Company carries its trade accounts receivable at net realizable value. Accounts receivable have terms of ranging from 30 to 75 days and do not bear interest. The Company monitors its exposure to losses on receivables and maintains allowances for potential losses or adjustments. The Company determines these allowances by (1) evaluating the aging of its receivables; (2) analyzing its history of sales adjustments; and (3) reviewing its high-risk customers. Past due receivable balances are written off when the Company’s efforts have been unsuccessful in collecting the amount due. Accounts receivable are stated at the amounts management expects to collect.
Accounts receivable, net, is as follows:
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions, short-term investments and accounts receivable. At times, the Company’s cash in banks is in excess of the FDIC insurance limit. The Company has not experienced any loss as a result of these cash deposits. These cash balances are maintained with two banks. As of March 31, 2017, the Company was exposed to concentrations of credit risk through short-term investments held with two financial institutions. One customer accounted for 47% and 46% of the Company’s trade receivables as of March 31, 2017 and December 31, 2016, respectively. The Company does not generally require collateral or other security to support customer receivables.
On March 14, 2017, a distributor that represented 47% of the Company’s trade receivables as of March 31, 2017 issued to the Company a note in the amount of $467,444 due on June 12, 2017. Such note provides credit enhancement and bears interest commencing on the 45th day from the date of execution based on the Wall Street Journal’s prime rate at (4% per annum at March 31, 2017) for a period of 45 days and then adjusted to 15% per annum, thereafter. The obligations of the distributor under the note are personally guaranteed by its former part owner, who, on January 1, 2017, became the Company’s employee.
The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required.
Inventories
The Company’s inventory includes raw materials such as bottles, sweeteners, labels, flavors and packaging. Finished goods inventory consists of bottled iced tea and ALO Juice. As of March 31, 2017 and December 31, 2016, included in inventory was finished goods inventory with a cost of approximately $206,000 and $320,000, respectively, that was delivered to a distributor, and is held in inventory until certain revenue recognition criteria are met.
The Company values its inventories at the lower of cost or market, net of reserves. Cost is determined using the first-in, first-out (FIFO) method. As of March 31, 2017 and December 31, 2016, the Company recorded reserves of $59,113 and $45,078, respectively, to reduce the cost of certain products to estimated net realizable value. The following table summarizes inventories as of the dates presented:
Property and Equipment
Property and equipment is recorded at cost. Major property additions, replacements, and betterments are capitalized, while maintenance and repairs that do not extend the useful lives of an asset or add new functionality are expensed as incurred. Depreciation is recorded using the straight-line method over the respective estimated useful lives of the Company’s assets.
The estimated useful lives typically are 3 years for cold-drink containers, such as reusable fridges, wood racks, vending machines, barrels, and coolers, and are depreciated using the straight-line method over the estimated useful life of each group of equipment, as determined using the group-life method. Under this method, the Company does not recognize gains or losses on the disposal of individual units of equipment when the disposal occurs in the normal course of business. The Company capitalizes the costs of refurbishing its cold-drink containers and depreciates those costs over the estimated period until the next scheduled refurbishment or until the equipment is retired. The estimated useful lives are typically 3 to 5 years for office furniture and equipment and are depreciated on a straight-line basis. The estimated useful lives for trucks and automobiles are typically 3 to 5 years and are depreciated on a straight line basis. For the three months ended March 31, 2017 and 2016, depreciation expense was $41,369 and $38,694, respectively.
Intangible Assets
Intangible assets with finite useful lives are amortized over their expected useful life. Intangible assets with useful lives are tested for impairment when circumstances indicate that there could be an impairment. Intangible assets with finite useful lives include website development costs of $1,250 and $2,500 as of March 31, 2017 and December 31, 2016, respectively. The estimated useful life of the capitalized costs of the Company’s website is 3 years and is depreciated on a straight line basis. As of March 31, 2017, the cost of the website development was $15,000 and the accumulated amortization was $13,750. As of December 31, 2016, the cost of the website development was $15,000 and the accumulated amortization was $12,500. For the three months ended March 31, 2017 and 2016, amortization expense was $1,250 and $1,251, respectively. Expected future amortization of website development costs is $1,250 for the nine months ended December 31, 2017.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement, and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carry forwards will result in a benefit based on expected profitability by tax jurisdiction.
In its interim financial statements, the Company follows the guidance in ASC 270, “Interim Reporting” and ASC 740 “Income Taxes”, whereby the Company utilizes the expected annual effective tax rate in determining its income tax provisions for the interim periods. That rate differs from U.S. statutory rates primarily as a result of valuation allowance related to the Company’s net operating loss carryforward as a result of the historical losses of the Company.
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liabilities. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. The Company accounts for uncertain tax positions in accordance with ASC 740 —“Income Taxes”. No uncertain tax provisions have been identified. The Company accrues interest and penalties, if incurred, on unrecognized tax benefits as components of the income tax provision in the accompanying condensed consolidated statements of operations. Our primary tax jurisdictions are our federal, various state, and local taxes.
Generally, Federal, State and Local authorities may examine the Company’s tax returns for three years from the date of filing.
In accordance with ASC 740, the Company evaluates whether a valuation allowance should be established against the net deferred tax assets based upon the consideration of all available evidence and using a “more likely than not” standard. Significant weight is given to evidence that can be objectively verified. The determination to record a valuation allowance is based on the recent history of cumulative losses and current operating performance. In conducting the analysis, the Company utilizes an approach, which considers the current year loss, including an assessment of the degree to which any losses are driven by items that are unusual in nature and incurred to improve future profitability. In addition, the Company reviews changes in near-term market conditions and any other factors arising during the period, which may impact its future operating results.
Loss per share
Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon the exercise of stock options, warrants and the conversion. The computation of diluted earnings per share excludes those with an exercise price in excess of the average market price of the Company’s common shares during the periods presented. The computation of diluted earnings per share excludes outstanding options, warrants and other dilutive instruments in periods where the inclusion of such instruments would be antidilutive, as provided below:
Fair Value of Financial Instruments
The carrying amounts of cash, short term investments, accounts receivable, accrued expenses, automobile and equipment loans and the UBS Credit Line (See Note 4 below) approximate fair value due to the short-term nature of these instruments. In addition, for notes payable, the Company believes that interest rates approximate prevailing rates.
ASC 820 “Fair Value Measurements and Disclosures” provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
Fair value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.
Level 3 Significant unobservable inputs that cannot be corroborated by market data.
Fair values for short-term money market investments are determined from quoted prices in active markets for these money market funds, and are considered to be Level 1.
The carrying value of financial instruments in the Company’s condensed consolidated financial statements are as follows:
Recent Accounting Pronouncements
In January 2016, the FASB, issued Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends the guidance in U.S. generally accepted accounting principles on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and are to be adopted by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.
In February 2016, the FASB issued new lease accounting guidance (ASU No. 2016-02, Leases). Under the new guidance, at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.
On March 30, 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, “Compensation – Stock Compensation (Topic 718)”. This update requires that all excess tax benefits and tax deficiencies arising from share-based payment awards should be recognized as income tax expense or benefit on the income statement. The amendment also states that excess tax benefits should be classified along with other income tax cash flows as an operating activity. In addition, an entity can make an entity-wide accounting policy election to either estimate the number of awards expected to vest or account for forfeitures as they occur. The provisions of this update are effective for annual and interim periods beginning after December 15, 2016. The Company adopted this standard effective December 31, 2016. The adoption did not have a material effect on the Company’s condensed consolidated financial statements.
In April 2016, the FASB issued Accounting Standards Update ASU No. 2016-10 “Revenue from Contracts with Customers (Topic 606)”, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”). ASU 2016-10 clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early application permitted. The Company is continuing to evaluate the expected impact of this new revenue guidance. The Company is currently preparing its assessment of the full financial impact of the new revenue recognition guidance, including the method of adoption, and intends to adopt the guidance when it becomes effective for the Company on January 1, 2018.
In May 2016, the FASB issued Accounting Standards Update ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606)”, “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The core principal of ASU 2016-12 is the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early application permitted. The Company is continuing to evaluate the expected impact of this new revenue guidance. The Company is currently preparing its assessment of the full financial impact of the new revenue recognition guidance, including the method of adoption, and intends to adopt the guidance when it becomes effective for the Company on January 1, 2018.
In August 2016, the FASB issued Accounting Standards Update ASU No. 2016-15 “Statement of Cash Flows (Topic 230)”, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). The amendments for this update provide guidance on the eight specific cash flows: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The provisions of this update are effective for annual and interim periods beginning after December 15, 2016, with early application permitted. The Company adopted this standard effective December 31, 2016. The adoption did not have a material effect on the Company’s condensed consolidated financial statements.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01, “Clarifying the Definition of a Business” (“ASU 2017-01”), which provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 requires entities to use a screen test to determine when an integrated set of assets and activities is not a business or if the integrated set of assets and activities needs to be further evaluated against the framework. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.
Management’s Evaluation of Subsequent Events
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the review, other than described in Note 1 –Business Organization, Liquidity, and Management’s Plans, Note 8 - Commitments and Contingencies and Note 11 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements. |
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Equipment Loan |
3 Months Ended |
|---|---|
Mar. 31, 2017 | |
| Equipment Loan [Abstract] | |
| Equipment Loan |
NOTE 3 – EQUIPMENT LOAN
On November 23, 2015, the Company entered into a reimbursement agreement with Magnum Vending Corp. (“Magnum”), an entity managed by Philip Thomas, the Company’s Chief Executive Officer and a director of the Company, and certain of his family members. In exchange for the exclusive right to stock vending machines owned by Magnum, the Company 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 the Company. In addition, in exchange for the right to stock certain other vending machines that the Company has the right to use, the Company agreed to purchase the products required to be displayed in those vending machines from Magnum, at a price equal to Magnum’s cost for such products (See Note 10). The Company may terminate the agreement and all obligations to make future payments on ten days’ written notice to Magnum. As of March 31, 2017 and December 31, 2016, the outstanding balance on the equipment loan was $68,251 and $76,474, respectively. |
UBS Credit Line |
3 Months Ended |
|---|---|
Mar. 31, 2017 | |
| Line of Credit Facility [Abstract] | |
| UBS Credit Line |
NOTE 4 – UBS CREDIT LINE
On October 27, 2016, the Company 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 March 31, 2017, the interest rate on the UBS Credit Line was 3.483 %. The UBS Credit Line, when drawn, is collateralized by certain of the Company’s short-term investments. As of March 31, 2017 and December 31, 2016, the outstanding balance on the line of credit was $0 and $1,280,275, respectively. As of March 31, 2017 and December 31, 2016, the Company’s borrowing capacity under the UBS Credit line was $521,587 and $19,725, respectively. |
Line of Credit - Related Parties |
3 Months Ended |
|---|---|
Mar. 31, 2017 | |
| Line Of Credit - Related Parties | |
| Line of Credit Related Parties |
NOTE 5 – LINE OF CREDIT – RELATED PARTIES
Brentwood LIIT Corp.
On November 23, 2015, LIIT and LIBB entered into a Credit and Security Agreement (the “Credit Agreement”), by and among LIBB, as the borrower, LIIT and LIIT (NZ) Ltd. (the “Lender”). The Lender is controlled by a related party, Eric Watson, who beneficially owned approximately 17.4% of the Company as of March 31, 2017. The Credit Agreement provides for a revolving credit facility in an amount of up to $3,500,000, subject to approval by the lender. The Available Amount may be increased, in increments of $500,000, up to the Facility Amount, and LIBB may obtain further advances, subject to the approval of the Lender. |
Stockholders' Equity |
3 Months Ended |
|---|---|
Mar. 31, 2017 | |
| Stockholders' Equity Note [Abstract] | |
| Stockholders' Equity |
NOTE 6 – STOCKHOLDERS’ EQUITY
2017 Issuances
On January 3, 2017, the Company issued 1,790 shares to a product broker. The shares had a fair value of $7,500.
On January 17, 2017, the Company issued 41,965 shares of common stock to directors of the Company. The shares were issued in satisfaction of accrued director fees and had a fair value of $175,000.
On January 30, 2017, the Company issued 61,208 shares of the Company’s common stock to consultants of the Company in satisfaction of accrued obligations. The shares were valued based upon the value of such services. The fair value was $213,550. As of March 31, 2017, $104,690 is included within prepaid expenses and other current assets in the condensed consolidated balance sheets.
On March 27, 2017, the Company’s Board of Directors approved the issuance of 5,000 and 25,000 shares of the Company’s common stock to directors and consultants, respectively, in consideration of services provided. The fair value of these shares was $112,853.
On March 27, 2017, the Company’s Board of Directors approved the issuance of 111,457 shares of the Company’s common stock to consultants of the Company in consideration of services provided. The fair value of these shares was $437,598. |
Stock Based Compensation |
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| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Based Compensation |
NOTE 7 – STOCK BASED COMPENSATION
Stock Options
On May 27, 2015, the Company’s board of directors adopted the 2015 Long-Term Incentive Equity Plan (“2015 Stock Option Plan”). The 2015 Stock Option Plan provides for the grant of stock options, stock appreciation rights, restricted stock and other stock-based awards to, among others, the officers, directors, employees and consultants of the Company. During January 2017, the 2015 Stock Option Plan was amended to increase the aggregate number of shares authorized for issuance by 283,333 shares to 750,000 shares.
On January 5, 2017, the Company issued to various officers, directors, and employees options to purchase an aggregate of 220,867 shares of the Company’s common stock. The options expire five years from the date of grant, have an exercise price of $5.00, and vest quarterly over two years, beginning on April 5, 2017. The options have a fair value of $440,698.
On January 30, 2017, pursuant to his consulting agreement, Mr. Davidson, the Company’s Executive Chairman, was granted an option to purchase 71,686 shares of the Company’s common stock (See Note 8). The option expires four and a half years from the date of grant, has an exercise price of $4.09, and vests in three equal installments on January 30, 2017, July 28, 2017, and July 28, 2018. The option has a fair value of $131,240.
On March 10, 2017, in connection with his amended and restated employment agreement, Mr. Thomas, the Company’s Chief Executive Officer (“CEO”), was granted an option to purchase 75,000 shares of the Company’s common stock. The option expires five years from the date of grant and has an exercise price of $4.50 per share. The option will vest in three annual installments beginning on the date of grant. The option has a fair value of $128,062.
On March 27, 2017, as compensation, the Company issued to a director an option to purchase 70,000 shares of the Company’s common stock. The option will expire five years from the date of grant, has an exercise price of $4.50 per share, and vests in three annual installments beginning on the date of grant. The option has a fair value of $130,266.
The Company determined the fair value of stock options granted based upon the assumptions as provided below.
The following table summarizes the stock option activity of the Company:
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock.
As of March 31, 2017, there was a total of $1,048,036 of unrecognized compensation expense related to unvested stock options. This cost is expected to be recognized through 2019 over a weighted average period of 1.33 years.
The Company accounts for all stock based compensation as an expense in the financial statements and associated costs are measured at the fair value of the award or the fair value of the service provided whichever is most readily determinable.
Stock Warrants
The following table summarizes the common stock warrant activity of the Company:
The following tables summarize total stock-based compensation costs recognized for the three months ended March 31, 2017 and 2016:
The total amount of stock-based compensation was reflected within the statements of operations and comprehensive loss as:
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Commitments and Contingencies |
3 Months Ended |
|---|---|
Mar. 31, 2017 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies |
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is involved in various claims and legal actions arising from time to time in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters in ordinary course of business will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. Legal costs related to these matters are expensed as they are incurred.
On August 1, 2014, an action was filed by LIBB in the Supreme Court in the State of New York entitled Long Island Brand Beverages LLC v. Revolution Marketing, LLC (“Revolution”) and Ascent Talent, Model Promotion Ltd. LIBB is seeking damages of $10,000,000 for several claims including breach of contract and fraud occurring during 2014. Revolution has filed a counterclaim for breach of contract and related causes of action, claiming damages in the sum of $310,880, and seeking punitive damages of $5,000,000. Ascent has filed a pre-answer motion to dismiss LIBB’s complaint. LIBB filed papers in opposition and the motion was submitted by March 9, 2015. In addition, Revolution has filed a motion to amend its answer to include cross-claims against Ascent which were not asserted in its original answer of record. On February 5, 2016, the Court rendered a decision. The motion to dismiss was denied with the exception of two claims which the Court dismissed. In the same decision, the Court granted a separate motion filed by Revolution to amend its answer to include cross-claims against Ascent. The Company’s management and legal counsel believes it is too early to determine the probable outcome of this matter.
Brokerage Arrangements
The Company maintains arrangements with sales brokers who help with bringing new distributors and retail outlets to the Company. These sales brokers receive a commission for these services. For the three months ended March 31, 2017, commissions to these brokers ranged from 2-5% of sales. In addition, the Company sells its products through alternative vending channels. Commissions resulting from sales through these channels were 42% and 42% for the three months ended March 31, 2017 and 2016, respectively.
Employment Agreements
On December 9, 2016, the Company entered into an employment agreement with Julio X. Ponce to serve as Vice President of Southeast and Latin American Sales of the Company. Until December 31, 2016, Mr. Ponce was an owner of one of the Company’s distributors. Mr. Ponce’s primary duties shall be to advance the sales of ALO Juice. The term of employment agreement is from January 1, 2017 to December 31, 2017 and can be extended by written mutual agreement of the parties. Mr. Ponce will receive a base salary of $90,000 and an incentive bonus of up to 62,500 shares of the Company’s common stock based on the introduction or procurement of sales and/or distributors of the Company’s products outside of the Southeast United States and an additional performance bonus of up to 905,769 shares of the Company’s common stock based on sales of the Company’s iced tea and ALO Juice product by Mr. Ponce to approved customers reaching target thresholds in 2017. The target thresholds are between $2.5 million and $5.5 million for ALO Juice and between $2.0 million and $4.0 million for the Company’s iced tea products. Notwithstanding the foregoing, if such sales in 2018 do not reach at least 60% of their 2017 levels, the performance bonus will not be payable.
On March 10, 2017, the Company entered into an amended and restated employment agreement with Mr. Thomas. The amended employment agreement has a term that runs until December 31, 2019. Mr. Thomas will receive a base salary of $250,000, was paid $83,000 upon the signing of the agreement, and is eligible for paid incentive bonuses from the Company. Pursuant to the agreement, Mr. Thomas was also granted an option to purchase 75,000 shares of the Company’s common stock (See Note 7).
Consulting Agreements
On June 6, 2016, the Company entered into an amendment to the consulting agreement with Julian Davidson which provides for him to serve as the Company’s Executive Chairman. Either Mr. Davidson or the Company may terminate the consulting agreement with 30 days’ prior written notice. Pursuant to the consulting agreement, as in effect prior to its amendment and restatement as described below, the Company (a) paid to Mr. Davidson $10,000 per month, and (b) granted to Mr. Davidson 1,667 shares of common stock per month (an aggregate of 4,302 shares). The consulting agreement, as amended, contains provisions for protection of the Company’s intellectual property and confidentiality and non-competition restrictions for Mr. Davidson (generally imposing restrictions during the term of the consulting agreement, on (i) ownership or management of, or employment or consultation with, competing companies, (ii) soliciting employees to terminate their employment (iii) soliciting business from the Company’s customers, and (iv) soliciting prospective acquisition and investment candidates for purposes of acquiring or investing in such entity).
On August 18, 2016, the Company entered into a second amendment to the consulting agreement with Julian Davidson. The amendment modified the condition that was required to be satisfied for certain changes in the compensation payable to Mr. Davidson under the consulting agreement to take effect. After the amendment, upon the Company completing an equity raise with gross proceeds of at least $6,900,000, the monthly cash fee to Mr. Davidson increases to $20,000 per month, the monthly stock grant to Mr. Davidson is eliminated and Mr. Davidson receives a one-time cash bonus of $95,000 and a one-time grant of 50,000 shares of the Company’s common stock. The amendment also modified the compensation that will be payable to Mr. Davidson under his agreement. Mr. Davidson is entitled to receive an option to purchase 4% of the fully diluted common stock outstanding immediately after the Offering, or 286,744 shares of the Company’s common stock. On August 18, 2016, the Company granted to Mr. Davidson an option to purchase 286,744 shares of common stock.
On October 5, 2016, the Company entered into an amended and restated consulting agreement with Julian Davidson (“Davidson Amendment”), effective as of September 29, 2016, which provides for him to continue to serve as the Company’s Executive Chairman.
On March 1, 2017, the Company entered into a consulting agreement with an investor relations and communications firm. The agreement commenced on March 1, 2017 for an initial term of two months. The agreement was renewed for the month of May 2017 and may be renewed on a monthly basis by the Company. The agreement shall terminate in 180 days from the date of the agreement. In consideration for services, the Company shall pay (a) $15,000 in cash on the signing of the contract and $15,000 on the 5th day of each month thereafter, (b) up to $135,000 in ancillary budget (at the Company’s discretion) due each month for the balance of the contract, (c) issue 10,000 shares of common stock upon the execution of the agreement and issue a 10,000 shares of common stock on the 5th day of each month of the agreement until termination or renewal of this agreement, and (d) the reimbursements of pre-approved travel or other expenses monthly.
Distribution Agreements
On March 14, 2017, the Company entered into a long-term strategic distribution agreement with Big Geyser, a large independent non-alcoholic beverage distributor in metro New York. Big Geyser will be the exclusive distributor of the Company’s iced tea and lemonade 18oz bottle products. 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 the distribution footprint and allow the Company to streamline the business and bring additional focus to building the Company’s brand. As part of the distribution agreement, the Company has also agreed to issue warrants to Big Geyser in the second quarter as compensation for achieving certain performance targets. Leases
On June 6, 2014, the Company entered into a lease agreement. The lease commenced on July 1, 2014 and extends through June 30, 2017 and includes a two year extension option.
Rent expense for the three months ended March 31, 2017 and 2016 was $11,458 and $10,074, respectively.
Future minimum payments under the Company’s leases for the three months ended June 30, 2017 are $13,261.
In addition, the Company utilizes public warehouse space for its inventory. Public storage expense for the three months ended March 31, 2017 and 2016 was $9,421 and $20,610, respectively. |
Major Customers and Vendors |
3 Months Ended |
|---|---|
Mar. 31, 2017 | |
| Risks and Uncertainties [Abstract] | |
| Major Customers and Vendors |
NOTE 9 – MAJOR CUSTOMERS AND VENDORS
For the three months ended March 31, 2017 and 2016, two customers accounted for 35% and 10%, or 45% in the aggregate, and two customers accounted for 16% and 12%, or 28% in the aggregate, of the Company’s net sales, respectively
For the three months ended March 31, 2017 and 2016, two vendors accounted for 31% and 22%, or 53% in the aggregate, and four vendors accounted for 19%, 18%, 18% and 16%, or 71% in the aggregate, of purchases, respectively. |
Related Parties |
3 Months Ended |
|---|---|
Mar. 31, 2017 | |
| Related Party Transactions [Abstract] | |
| Related Parties |
NOTE 10 - RELATED PARTIES
The Company recorded revenue related to sales to an entity owned by an immediate family member of Philip Thomas, CEO, stockholder, and member of the Board of Directors. Mr. Thomas is also an employee of this entity. For the three months ended March 31, 2017 and 2016, sales to this related party were $269 and $1,158, respectively. As of March 31, 2017 and December 31, 2016, there was $269 and $0, respectively, due from this related party which was included in accounts receivable in the condensed consolidated balance sheets. The Company also purchases product at cost, from this entity to supplement certain vending sales. For the three months ended March 31, 2017 and 2016, the Company purchased $3,342 and $8,258, respectively, of product from this entity. As of March 31, 2017 and December 31, 2016, the outstanding balance due to this entity included in accounts payable was $4,042 and $10,043, respectively.
On March 27, 2017, the Company issued an option to purchase 70,000 shares of the Company’s common stock to a member of the Board of Directors in connection with services provided to the Company beyond the Board of Director duties of this Director. As of March 31, 2017 and December 31, 2016 accounts payable and accrued expenses to a company wholly owned by this director’s company were $9,375 and $4,032, respectively. |
Subsequent Events |
3 Months Ended |
|---|---|
Mar. 31, 2017 | |
| Subsequent Events [Abstract] | |
| Subsequent Events |
NOTE 11 – SUBSEQUENT EVENTS
Long-Term Equity Incentive Plan
On April 14, 2017, the Company’s board of directors adopted the 2017 Long-Term Incentive Equity Plan (“2017 Stock Option Plan”). The 2017 Stock Option Plan provides for the grant of stock options, stock appreciation rights, restricted stock and other stock-based awards to, among others, the officers, directors, employees and consultants of the Company. The total number of shares reserved under the 2017 Stock Option Plan is 850,000.
Option Issuance
On April 14, 2017, the Company’s issued options to purchase 127,500 shares of the Company’s common stock under the 2015 Stock Option Plan and 187,647 shares of the Company’s common stock under the 2017 Stock Option Plan to various employees.
Employment Agreement On April 18, 2017, the Company entered into an employment agreement with Virginia Morris to serve as the Company’s Chief Sales & Marketing Officer. Ms. Morris’s primary responsibilities will be driving the growth agenda for the Company’s entire portfolio of brands and overseeing key sales and marketing functions including brand management, channel strategy development and execution, and product innovation. Pursuant to the employment agreement, Ms. Morris was awarded an option to purchase 27,500 shares of the Company’s common stock under the 2015 Stock Option Plan, and an additional option to purchase 42,500 shares of the Company’s common stock under the 2017 Stock Option Plan. The options have an exercise price of $4.50 and vest annually in three equal installments beginning on the date of grant. Ms. Morris was also awarded 25,000 shares of the Company’s common stock prior to the execution of her employment agreement for services provided to the Company. |
Summary of Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation |
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2016 and related notes thereto included in the Company’s Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on March 30, 2017. |
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| Reclassification |
Reclassification
Certain amounts in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no effect on the previously reported net loss. |
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| Principles of Consolidation |
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in the accompanying condensed consolidated financial statements. |
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| Use of Estimates |
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and also affect the amounts of revenues and expenses reported for each period. Actual results could differ from those which result from using such estimates. Management utilizes various other estimates, including but not limited to, assessing the collectability of accounts receivable, accrual of rebates to customers, the valuation of securities, the valuation of inventory, determining the estimated lives of long-lived assets, determining the potential impairment of intangibles, the fair value of warrants issued, the fair value of stock options, and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary. |
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| Revenue Recognition |
Revenue Recognition
Revenue is stated net of sales discounts and rebates paid to customers (See Customer Marketing Programs and Sales Incentives, below). Net sales are recognized when all of the following conditions are met: (1) the price is fixed and determinable; (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 and accounts receivable until such recognition criteria are met. |
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| Customer Marketing Programs and Sales Incentives |
Customer Marketing Programs and Sales Incentives
The Company participates 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 various discounts to the end retailers or for participating in specific marketing programs. The Company believes that its participation in these programs is essential to ensuring volume and revenue growth in a competitive marketplace. During the three months ended March 31, 2017, an adjustment to these allowances resulted in an increase of $9,144 in net sales. During the three months ended March 31, 2016, these allowances resulted in a reduction in net sales of $45,165. |
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| Shipping and Handling Costs |
Shipping and Handling Costs
Shipping and handling costs incurred to move finished goods from the Company’s sales distribution centers to customer locations are included in selling and marketing expenses within the condensed consolidated statements of operations and totaled $25,290 and $40,152, for the three months ended March 31, 2017 and 2016, respectively. |
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| Advertising |
Advertising
The Company expenses advertising costs as incurred. Advertising costs are included in selling and marketing expenses within the condensed consolidated statements of operations and totaled $51,642 and $9,631 for the three months ended March 31, 2017 and 2016, respectively. |
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| Research and Development |
Research and Development
Costs related to new product initiatives incurred during the three months ended March 31, 2017 and 2016 were $176,862 and $400, respectively, and were included in selling and marketing expenses. Other research and development costs were $829 and $46,667 for the three months ended March 31, 2017 and 2016, respectively and were included in general and administrative expenses. The expenses incurred during the three months ended March 31, 2016 were incurred pursuant to a product development agreement which will require the Company to pay $40,000 in cash and $40,000 in common stock upon the completion of the arrangement. As of March 31, 2017, $50,000 was included in accrued expenses in the condensed consolidated balance sheet related to the 2016 arrangement. |
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| Short-term Investment |
Short-term Investment
The Company accounts for securities in accordance with accounting standards for investments in debt and equity securities. Accounting standards require investments in debt and equity securities to be classified as either “held to maturity”, “trading”, or “available-for-sale.”
The Company holds investments in marketable securities, consisting of U.S. government securities and mutual funds. The Company’s available-for-sale securities are carried at estimated fair value with any unrealized gains and losses, net of taxes, included in accumulated other comprehensive (loss) income in stockholders’ equity when applicable. During the three months ended March 31, 2017 and 2016, the unrealized gain was $12,197 and $0, respectively. Unrealized losses are charged against interest and other income/(expense), net, when a decline in fair value is determined to be other-than-temporary. The Company has not recorded any such impairment charge in the periods presented. The Company determines realized gains or losses on sale of marketable securities on a specific identification method, and records such gains or losses as interest and other income/(expense), net.
The following table sets forth the available-for-sale securities:
Short-term investments included the following securities with gross unrealized gains/losses included in other comprehensive loss:
The following table classifies the US Government Securities by maturity:
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| Accounts Receivable |
Accounts Receivable
The Company sells products to distributors and in certain cases directly to retailers, and extends credit, generally without requiring collateral, based on its evaluation of the customer’s financial condition. While the Company has a concentration of credit risk in the retail sector, it believes this risk is mitigated due to the diverse nature of the customers it serves, including, but not limited to, its type, geographic location, size, and beverage channel. Potential losses on the Company’s receivables are dependent on each individual customer’s financial condition and sales adjustments granted after the balance sheet date. The Company carries its trade accounts receivable at net realizable value. Accounts receivable have terms of ranging from 30 to 75 days and do not bear interest. The Company monitors its exposure to losses on receivables and maintains allowances for potential losses or adjustments. The Company determines these allowances by (1) evaluating the aging of its receivables; (2) analyzing its history of sales adjustments; and (3) reviewing its high-risk customers. Past due receivable balances are written off when the Company’s efforts have been unsuccessful in collecting the amount due. Accounts receivable are stated at the amounts management expects to collect.
Accounts receivable, net, is as follows:
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| Concentrations of Credit Risk |
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions, short-term investments and accounts receivable. At times, the Company’s cash in banks is in excess of the FDIC insurance limit. The Company has not experienced any loss as a result of these cash deposits. These cash balances are maintained with two banks. As of March 31, 2017, the Company was exposed to concentrations of credit risk through short-term investments held with two financial institutions. One customer accounted for 47% and 46% of the Company’s trade receivables as of March 31, 2017 and December 31, 2016, respectively. The Company does not generally require collateral or other security to support customer receivables.
On March 14, 2017, a distributor that represented 47% of the Company’s trade receivables as of March 31, 2017 issued to the Company a note in the amount of $467,444 due on June 12, 2017. Such note provides credit enhancement and bears interest commencing on the 45th day from the date of execution based on the Wall Street Journal’s prime rate at (4% per annum at March 31, 2017) for a period of 45 days and then adjusted to 15% per annum, thereafter. The obligations of the distributor under the note are personally guaranteed by its former part owner, who, on January 1, 2017, became the Company’s employee.
The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required. |
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| Inventories |
Inventories
The Company’s inventory includes raw materials such as bottles, sweeteners, labels, flavors and packaging. Finished goods inventory consists of bottled iced tea and ALO Juice. As of March 31, 2017 and December 31, 2016, included in inventory was finished goods inventory with a cost of approximately $206,000 and $320,000, respectively, that was delivered to a distributor, and is held in inventory until certain revenue recognition criteria are met.
The Company values its inventories at the lower of cost or market, net of reserves. Cost is determined using the first-in, first-out (FIFO) method. As of March 31, 2017 and December 31, 2016, the Company recorded reserves of $59,113 and $45,078, respectively, to reduce the cost of certain products to estimated net realizable value. The following table summarizes inventories as of the dates presented:
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| Property and Equipment |
Property and Equipment
Property and equipment is recorded at cost. Major property additions, replacements, and betterments are capitalized, while maintenance and repairs that do not extend the useful lives of an asset or add new functionality are expensed as incurred. Depreciation is recorded using the straight-line method over the respective estimated useful lives of the Company’s assets.
The estimated useful lives typically are 3 years for cold-drink containers, such as reusable fridges, wood racks, vending machines, barrels, and coolers, and are depreciated using the straight-line method over the estimated useful life of each group of equipment, as determined using the group-life method. Under this method, the Company does not recognize gains or losses on the disposal of individual units of equipment when the disposal occurs in the normal course of business. The Company capitalizes the costs of refurbishing its cold-drink containers and depreciates those costs over the estimated period until the next scheduled refurbishment or until the equipment is retired. The estimated useful lives are typically 3 to 5 years for office furniture and equipment and are depreciated on a straight-line basis. The estimated useful lives for trucks and automobiles are typically 3 to 5 years and are depreciated on a straight line basis. For the three months ended March 31, 2017 and 2016, depreciation expense was $41,369 and $38,694, respectively. |
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| Intangible Assets |
Intangible Assets
Intangible assets with finite useful lives are amortized over their expected useful life. Intangible assets with useful lives are tested for impairment when circumstances indicate that there could be an impairment. Intangible assets with finite useful lives include website development costs of $1,250 and $2,500 as of March 31, 2017 and December 31, 2016, respectively. The estimated useful life of the capitalized costs of the Company’s website is 3 years and is depreciated on a straight line basis. As of March 31, 2017, the cost of the website development was $15,000 and the accumulated amortization was $13,750. As of December 31, 2016, the cost of the website development was $15,000 and the accumulated amortization was $12,500. For the three months ended March 31, 2017 and 2016, amortization expense was $1,250 and $1,251, respectively. Expected future amortization of website development costs is $1,250 for the nine months ended December 31, 2017. |
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| Income Taxes |
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement, and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carry forwards will result in a benefit based on expected profitability by tax jurisdiction.
In its interim financial statements, the Company follows the guidance in ASC 270, “Interim Reporting” and ASC 740 “Income Taxes”, whereby the Company utilizes the expected annual effective tax rate in determining its income tax provisions for the interim periods. That rate differs from U.S. statutory rates primarily as a result of valuation allowance related to the Company’s net operating loss carryforward as a result of the historical losses of the Company.
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liabilities. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. The Company accounts for uncertain tax positions in accordance with ASC 740 —“Income Taxes”. No uncertain tax provisions have been identified. The Company accrues interest and penalties, if incurred, on unrecognized tax benefits as components of the income tax provision in the accompanying condensed consolidated statements of operations. Our primary tax jurisdictions are our federal, various state, and local taxes.
Generally, Federal, State and Local authorities may examine the Company’s tax returns for three years from the date of filing.
In accordance with ASC 740, the Company evaluates whether a valuation allowance should be established against the net deferred tax assets based upon the consideration of all available evidence and using a “more likely than not” standard. Significant weight is given to evidence that can be objectively verified. The determination to record a valuation allowance is based on the recent history of cumulative losses and current operating performance. In conducting the analysis, the Company utilizes an approach, which considers the current year loss, including an assessment of the degree to which any losses are driven by items that are unusual in nature and incurred to improve future profitability. In addition, the Company reviews changes in near-term market conditions and any other factors arising during the period, which may impact its future operating results. |
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| Loss Per Share |
Loss per share
Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon the exercise of stock options, warrants and the conversion. The computation of diluted earnings per share excludes those with an exercise price in excess of the average market price of the Company’s common shares during the periods presented. The computation of diluted earnings per share excludes outstanding options, warrants and other dilutive instruments in periods where the inclusion of such instruments would be antidilutive, as provided below:
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| Fair Value of Financial Instruments |
Fair Value of Financial Instruments
The carrying amounts of cash, short term investments, accounts receivable, accrued expenses, automobile and equipment loans and the UBS Credit Line (See Note 4 below) approximate fair value due to the short-term nature of these instruments. In addition, for notes payable, the Company believes that interest rates approximate prevailing rates.
ASC 820 “Fair Value Measurements and Disclosures” provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
Fair value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.
Level 3 Significant unobservable inputs that cannot be corroborated by market data.
Fair values for short-term money market investments are determined from quoted prices in active markets for these money market funds, and are considered to be Level 1.
The carrying value of financial instruments in the Company’s condensed consolidated financial statements are as follows:
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| Recent Accounting Pronouncements |
Recent Accounting Pronouncements
In January 2016, the FASB, issued Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends the guidance in U.S. generally accepted accounting principles on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and are to be adopted by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.
In February 2016, the FASB issued new lease accounting guidance (ASU No. 2016-02, Leases). Under the new guidance, at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.
On March 30, 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, “Compensation – Stock Compensation (Topic 718)”. This update requires that all excess tax benefits and tax deficiencies arising from share-based payment awards should be recognized as income tax expense or benefit on the income statement. The amendment also states that excess tax benefits should be classified along with other income tax cash flows as an operating activity. In addition, an entity can make an entity-wide accounting policy election to either estimate the number of awards expected to vest or account for forfeitures as they occur. The provisions of this update are effective for annual and interim periods beginning after December 15, 2016. The Company adopted this standard effective December 31, 2016. The adoption did not have a material effect on the Company’s condensed consolidated financial statements.
In April 2016, the FASB issued Accounting Standards Update ASU No. 2016-10 “Revenue from Contracts with Customers (Topic 606)”, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”). ASU 2016-10 clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early application permitted. The Company is continuing to evaluate the expected impact of this new revenue guidance. The Company is currently preparing its assessment of the full financial impact of the new revenue recognition guidance, including the method of adoption, and intends to adopt the guidance when it becomes effective for the Company on January 1, 2018.
In May 2016, the FASB issued Accounting Standards Update ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606)”, “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The core principal of ASU 2016-12 is the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early application permitted. The Company is continuing to evaluate the expected impact of this new revenue guidance. The Company is currently preparing its assessment of the full financial impact of the new revenue recognition guidance, including the method of adoption, and intends to adopt the guidance when it becomes effective for the Company on January 1, 2018.
In August 2016, the FASB issued Accounting Standards Update ASU No. 2016-15 “Statement of Cash Flows (Topic 230)”, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). The amendments for this update provide guidance on the eight specific cash flows: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The provisions of this update are effective for annual and interim periods beginning after December 15, 2016, with early application permitted. The Company adopted this standard effective December 31, 2016. The adoption did not have a material effect on the Company’s condensed consolidated financial statements.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01, “Clarifying the Definition of a Business” (“ASU 2017-01”), which provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 requires entities to use a screen test to determine when an integrated set of assets and activities is not a business or if the integrated set of assets and activities needs to be further evaluated against the framework. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements. |
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| Management's Evaluation of Subsequent Events |
Management’s Evaluation of Subsequent Events
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the review, other than described in Note 1 –Business Organization, Liquidity, and Management’s Plans, Note 8 - Commitments and Contingencies and Note 11 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements. |
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Summary of Significant Accounting Policies (Tables) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Available for Sale Securities |
The following table sets forth the available-for-sale securities:
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| Schedule of Unrealized Losses on Investments |
Short-term investments included the following securities with gross unrealized gains/losses included in other comprehensive loss:
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| Schedule of US Government Securities by Maturity |
The following table classifies the US Government Securities by maturity:
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| Schedule of Accounts Receivable |
Accounts receivable, net, is as follows:
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| Schedule of Inventory |
The following table summarizes inventories as of the dates presented:
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| Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share |
The computation of diluted earnings per share excludes outstanding options, warrants and other dilutive instruments in periods where the inclusion of such instruments would be antidilutive, as provided below:
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| Schedule of Fair Value of Financial Assets and Liabilities |
The carrying value of financial instruments in the Company’s condensed consolidated financial statements are as follows:
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Stock Based Compensation (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value of Stock Options Assumptions |
The Company determined the fair value of stock options granted based upon the assumptions as provided below.
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| Schedule of Stock Options, Activity |
The following table summarizes the stock option activity of the Company:
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| Schedule of Warrant Activity |
The following table summarizes the common stock warrant activity of the Company:
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| Schedule of Stock Based Compensation Expense | Weighted average number of common shares outstanding - basic and diluted | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies - Schedule of Available for Sale Securities (Details) - USD ($) |
Mar. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Available for sale securities | $ 1,602,655 | $ 2,389,521 |
| US Goverment Securities [Member] | ||
| Available for sale securities | 195,374 | |
| Fixed Income Mutual Funds [Member] | ||
| Available for sale securities | $ 1,602,655 | $ 2,194,147 |
Summary of Significant Accounting Policies - Schedule of Unrealized Losses on Investments (Details) - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2017 |
Dec. 31, 2016 |
|
| Amortized Cost | $ 1,620,704 | $ 2,419,767 |
| Unrealized Losses | (18,049) | (30,246) |
| Fair Value | 1,602,655 | 2,389,521 |
| US Goverment Securities [Member] | ||
| Amortized Cost | 195,570 | |
| Unrealized Losses | (196) | |
| Fair Value | 195,374 | |
| Fixed Income Mutual Funds [Member] | ||
| Amortized Cost | 1,620,704 | 2,224,197 |
| Unrealized Losses | (18,049) | (30,050) |
| Fair Value | $ 1,602,655 | $ 2,194,147 |
Summary of Significant Accounting Policies - Schedule of US Government Securities by Maturity (Details) - US Goverment Securities [Member] - USD ($) |
Mar. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Within one year | $ 94,967 | |
| Within one to five years | 100,407 | |
| Total | $ 195,374 |
Summary of Significant Accounting Policies - Schedule of Accounts Receivable (Details) - USD ($) |
Mar. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| Accounts receivable, gross | $ 2,144,878 | $ 1,859,474 |
| Allowance for doubtful accounts | (490,299) | (232,416) |
| Accounts receivable, net | $ 1,654,579 | $ 1,627,058 |
Summary of Significant Accounting Policies - Schedule of Inventory (Details) - USD ($) |
Mar. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| Finished goods | $ 627,970 | $ 905,642 |
| Raw materials and supplies | 446,507 | 282,299 |
| Total inventories | $ 1,074,477 | $ 1,187,941 |
Summary of Significant Accounting Policies - Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share (Details) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
| Total potentially dilutive securities | 1,498,534 | 895,981 |
| Options To Purchase Common Stock [Member] | ||
| Total potentially dilutive securities | 862,964 | 425,411 |
| Warrants To Purchase Common Stock [Member] | ||
| Total potentially dilutive securities | 635,570 | 470,570 |
Summary of Significant Accounting Policies - Schedule of Fair Value of Financial Assets and Liabilities (Details) - USD ($) |
Mar. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Short-term investments | $ 1,602,655 | $ 2,389,521 |
| Level 1 [Member] | ||
| Short-term investments | 1,602,655 | 2,389,521 |
| Level 2 [Member] | ||
| Short-term investments | ||
| Level 3 [Member] | ||
| Short-term investments |
Equipment Loan (Details Narrative) |
Nov. 23, 2015
USD ($)
Installments
|
Mar. 31, 2017
USD ($)
|
Dec. 31, 2016
USD ($)
|
|---|---|---|---|
| Short-term Debt [Line Items] | |||
| Debt instrument, face amount | $ 117,917 | ||
| Debt instrument, periodic payment, total | $ 3,819 | ||
| Debt instrument, interest rate during period | 10.00% | ||
| Number of monthly installments | Installments | 35 | ||
| Equipment Loan [Member] | |||
| Short-term Debt [Line Items] | |||
| Loans payable, total | $ 68,251 | $ 76,474 |
USB Credit Line (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Oct. 27, 2016 |
Mar. 31, 2017 |
Dec. 31, 2016 |
|
| Line of credit facility,borrowing capacity | $ 3,500,000 | ||
| Line of credit interest rate percentage | 3.483% | ||
| Line of credit | $ 1,280,275 | ||
| UBS Bank [Member] | |||
| Line of credit facility,borrowing capacity | $ 521,587 | $ 19,725 | |
| Line of credit interest rate description | ICE Swap Rate plus a margin of between 0.40% and 0.70% |
Line of Credit - Related Parties (Details Narrative) - USD ($) |
Nov. 23, 2015 |
Mar. 31, 2017 |
|---|---|---|
| Line of Credit Facility [Line Items] | ||
| Line of credit facility, maximum borrowing capacity | $ 3,500,000 | |
| Credit and Security Agreement [Member] | Brentwood LIIT Corp [Member] | ||
| Line of Credit Facility [Line Items] | ||
| Beneficially owned percentage | 17.40% | |
| Line of credit facility, maximum borrowing capacity | $ 3,500,000 | |
| Line of credit facility, capacity available | $ 500,000 |
Stockholders' Equity (Details Narrative) - USD ($) |
3 Months Ended | |||||
|---|---|---|---|---|---|---|
Mar. 27, 2017 |
Jan. 30, 2017 |
Jan. 17, 2017 |
Jan. 03, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
|
| Stock issued during the period, value | $ 1,429,740 | |||||
| Prepaid expenses and other current assets | 304,020 | $ 91,072 | ||||
| Product Broker [Member] | ||||||
| Stock issued during the period, share | 1,790 | |||||
| Stock issued during the period, value | $ 7,500 | |||||
| Directors [Member] | ||||||
| Stock issued during the period, share | 41,965 | |||||
| Stock issued during the period, value | $ 175,000 | |||||
| Consultants [Member] | ||||||
| Stock issued during the period, share | 61,208 | |||||
| Stock issued during period for services, shares | 25,000 | |||||
| Sock fair value | $ 213,550 | |||||
| Prepaid expenses and other current assets | $ 104,690 | |||||
| Board of Directors [Member] | ||||||
| Stock issued during period for services, shares | 5,000 | |||||
| Prepaid expenses and other current assets | $ 112,853 | |||||
| Consultants One [Member] | ||||||
| Stock issued during period for services, shares | 111,457 | |||||
| Prepaid expenses and other current assets | $ 437,598 |
Stock Based Compensation - Schedule of Fair Value of Stock Option Assumptions (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2017
$ / shares
| |
| Dividend yield | 0.00% |
| Minimum [Member] | |
| Stock price | $ 3.88 |
| Exercise price | $ 4.09 |
| Expected volatility | 72.00% |
| Risk-Free interest rate, per annum | 1.43% |
| Expected life (in years) | 2 years 6 months 29 days |
| Maximum [Member] | |
| Stock price | $ 4.32 |
| Exercise price | $ 5.00 |
| Expected volatility | 75.00% |
| Risk-Free interest rate, per annum | 1.57% |
| Expected life (in years) | 3 years 22 days |
Stock Based Compensation - Schedule of Warrant Activity (Details) - Warrant [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2017
$ / shares
shares
| |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Number of shares, Outstanding beginning balance | shares | 470,570 |
| Number of shares, Issued | shares | 165,000 |
| Number of shares, Expired | shares | |
| Number of shares, Outstanding ending balance | shares | 635,570 |
| Number of shares, Exercisable | shares | 635,570 |
| Weighted Average Exercise Price, Outstanding beginning balance | $ / shares | $ 5.95 |
| Weighted Average Exercise Price, Issued | $ / shares | 4.18 |
| Weighted Average Exercise Price, Expired | $ / shares | |
| Weighted Average Exercise Price, Outstanding ending balance | $ / shares | 5.49 |
| Weighted Average Exercise Price, Exercisable | $ / shares | $ 5.49 |
| Weighted Average Remaining Contractual Term (Years) | 1 year 8 months 12 days |
| Weighted Average Remaining Contractual Term (Years), Exercisable | 1 year 8 months 12 days |
Stock Based Compensation - Schedule of Stock Based Compensation Expense (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
| Stock-based compensation | $ 630,230 | $ 181,354 |
| General and Administrative [Member] | ||
| Stock-based compensation | 421,817 | 135,740 |
| Sales and Marketing [Member] | ||
| Stock-based compensation | 208,413 | 45,614 |
| Stock Options [Member] | ||
| Stock-based compensation | 375,904 | 151,354 |
| Warrant [Member] | ||
| Stock-based compensation | 172,526 | |
| Common Stock [Member] | ||
| Stock-based compensation | $ 81,800 | $ 30,000 |
Related Parties (Details Narrative) - USD ($) |
3 Months Ended | |||
|---|---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Mar. 27, 2017 |
Dec. 31, 2016 |
|
| Related Party Transaction [Line Items] | ||||
| Related party transaction purchases from related party | $ 3,342 | $ 8,258 | ||
| Board of Directors [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Number of options approved to purchase shares of common stock | 70,000 | |||
| Directors [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Accounts payable and accrued expenses related parties | 9,375 | $ 4,032 | ||
| Accounts Payable [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Due to related parties | 4,042 | $ 10,043 | ||
| Immediate Family Member of Management or Principal Owner [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Revenue from related parties | 269 | 1,158 | ||
| Accounts receivable related parties | $ 269 | $ 0 | ||