UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period endedMarch 31, June 30, 2016

or

For the transition period from _____________ to _____________

Commission File Number000-55448001-37808

Long Island Iced Tea Corp.LONG ISLAND ICED TEA CORP.

(Exact Name of Issuer as Specified in Its Charter)

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 pastpreceding 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.

Yesx [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).

Yesx [X] No¨ [  ]

Indicate by check mark whether the Registrantregistrant 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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes¨ [  ] Nox [X]

As of May 9,August 12, 2016, 4,973,7157,168,621 shares of common stock, par value $.0001 per share, were issued and outstanding.

PART I.
I - FINANCIAL INFORMATION

ITEMItem 1. FINANCIAL STATEMENTSFinancial Statements.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

Theaccompanying notes are an integral part of these unaudited condensed consolidated financial statements.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2016

(UNAUDITED)

Theaccompanying notes are an integral part of these unaudited condensed consolidated financial statements.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Theaccompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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 C-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”), Long Island Brand Beverages LLC (“LIBB”) and the founders of LIBB (“Founders”). Pursuant to the merger agreement, (a) Cullen Merger Sub was to be merged with and into Cullen, with Cullen surviving and becoming a wholly-owned subsidiary of LIIT and (b) LIBB Merger Sub was to be merged with and into LIBB, with LIBB surviving and becoming a wholly-owned subsidiary of LIIT (the “Mergers”). As a result of the merger which was consummated on May 27, 2015, LIIT consisted of its wholly owned subsidiaries, LIBB (its operating subsidiary) and Cullen and Cullen’s wholly owned subsidiaries, Cullen Agricultural Technologies, Inc. and Natural Dairy, Inc. (collectively the “Company”).

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 hold a large percent of the LIIT’s shares and will exercise significant influence over the operating and financial policies of the consolidated entity and the Company 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 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 produces and distributes premium ready-to-drink iced tea, with a proprietary recipe and quality components. The Company produces a 100% brewed tea, using black tea leaves, purified water and natural cane sugar or sucralose. The Company’s product, Long Island Iced Tea, is targeted for sale to health conscious consumers on the go. Flavors change from time to time, and have included lemon, peach, raspberry, guava, mango, diet lemon, diet peach, sweet tea, green tea and honey 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 has also introduced fourfive of its flavors in gallon bottles in 2015. The flavors packaged in gallon bottles include lemon, preach,peach, sweet tea, green tea and honey, and mango. In addition, the Company, in order to service certain vending contracts, sellssold snacks and other beverage products on a limited basis in 2015. During the first quarter of 2016, the Company explored opportunities with other products, such as juices. During the second quarter of 2016, the Company began selling aloe juices and commenced selling a private label version of its product.

The Company sells its products 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 Northeastern portionNew York, New Jersey, Connecticut and Pennsylvania markets. During 2016, the Company has also begun expansion into other geographic markets, such as Florida, Virginia, Massachusetts, New Hampshire, Nevada, Rhode Island and parts of the United States.Midwest. The Company’s products are currently available in twelve states that have a cumulative population of 100 million people.

Liquidity and Management’s Plan

As of March 31, 2016, the Company’s cash on hand was $362,854. The Company incurred net losses of $1,417,070 and $378,666 for the three months ended March 31, 2016 and 2015, respectively. At March 31, 2016, the Company’s stockholders’ equity was $1,437,222. As of March 31, 2016, the Company had working capital of $763,090.

During the three months ended March 31, 2016, the Company raised net proceeds of $861,790 through the sale of 230,475 shares of common stock and 230,475 warrants. Included in the net proceeds were $120,000 of stock subscriptions receivable which were collected in April 2016.

On November 23, 2015, LIIT and LIBB, its wholly owned subsidiary, entered into a Credit and Security Agreement (the “Credit Agreement”), by and among LIBB, as the borrower, LIIT and Brentwood LIIT Inc., as the lender (the “Lender”). The Lender is controlled by a related party, Eric Watson, who beneficially owned approximately 16% of the Company on November 23, 2015 and 28.2% as of March 31, 2016. The Credit Agreement provides for a revolving credit facility in an initial amount of up to $1,000,000, subject to increases at the Lender’s discretion as provided in the Credit Agreement (the “Available Amount”), up to a maximum amount of $5,000,000 (the “ Facility Amount”). 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.

On November 23, 2015 and December 10, 2015, LIBB obtained an aggregate of $1,000,000 in advances from the Lender, constituting the full Available Amount at such time. On March 17, 2016, LIIT, LIBB and the Lender agreed to increase the Available Amount by $500,000 to $1,500,000. On March 24, 2016, LIBB obtained a $250,000 advance from the Lender and during May 2016, LIBB will obtain another $250,000 advance from the Lender, as a result of which the Available Amount will be borrowed in full.

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, equity, and through utilizing trade credit with its vendors.

As of June 30, 2016, the Company’s cash on hand was $26,666. The Company incurred net losses of $2,082,166 and $3,499,236 for the three and six months ended June 30, 2016, respectively. At June 30, 2016, the Company’s stockholders’ deficit was $437,341. As of June 30, 2016, the Company had a deficit in working capital of $788,065.

During the six months ended June 30, 2016, the Company raised net proceeds of $861,790 through the sale of 230,475 shares of common stock and 230,475 warrants to purchase common stock.

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

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 Brentwood LIIT Inc., as the lender. Brentwood LIIT Inc.’s interest in the Credit Agreement and the related agreements and instruments thereunder was subsequently transferred to Brentwood LIIT (NZ) Ltd. (the “Lender”). Brentwood LIIT Inc. and the Lender are controlled by a related party, Eric Watson, who beneficially owned approximately 16% of the Company on November 23, 2015 and 28.8% as of June 30, 2016. The Credit Agreement provides for a revolving credit facility in an initial amount of up to $1,000,000, subject to increases at the Lender’s discretion as provided in the Credit Agreement (the “Available Amount”), up to a maximum amount of $5,000,000 (which was subsequently reduced to $3,500,000 in connection with the closing of the Offering, as defined below) (the ” Facility Amount”). 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. On November 23, 2015 and December 10, 2015, LIBB obtained an aggregate of $1,000,000 in advances from the Lender, constituting the full Available Amount at such time. On March 17, 2016, LIIT, LIBB and the Lender agreed to increase the Available Amount by $500,000 to $1,500,000 and approved an additional $500,000 in advances. On March 24, 2016, LIBB obtained $250,000 of the approved advance from the Lender and during May 2016, LIBB obtained the other $250,000 of the approved advances from the Lender, as a result of which the Available Amount was borrowed in full.

On July 28 and 29, 2016, the Company sold 1,270,156 shares (the “Shares”) of common stock, in its public offering (the “Offering”) at an offering price of $5.50 per share, pursuant to the Company’s registration statement on Form S-1 (File No. 333-210669). The sale of the Shares generated gross proceeds of $6,985,858 and net proceeds of $6,084,831 after deducting commissions and other offering expenses. In connection with sale of the Shares, the Company’s common stock was approved for listing on the NASDAQ Capital Market under its current symbol, “LTEA.” The Offering was terminated on August 4, 2016. No further sales of shares were made in the Offering.

In connection with the sale of the Shares, the Company completed a recapitalization transaction (the “Recapitalization”) with the Lender. Pursuant to the Recapitalization, Brentwood converted all of the outstanding principal and interest under the Credit Agreement into 421,972 shares of common stock and exchanged its warrant for 486,111 shares of common stock.

In connection with the consummation of the Offering, on July 29, 2016, the selling agents were issued warrants to purchase an aggregate of 31,754 shares of common stock. These warrants will be exercisable for cash or on a cashless basis at an exercise price of $6.875 per share, commencing on January 14, 2017 and expiring on July 14, 2021. The exercise price and number of shares of common stock issuable upon exercise of the warrants are subject to adjustment for stock splits and similar adjustments. The warrants contain provisions for one demand registration of the sale of the underlying shares of common stock at the Company’s expense, an additional demand registration at the warrant holders’ expense, and unlimited “piggyback” registration rights at the Company’s expense until July 28, 2021.

The Company believes that as a result of a commitment for financing from a stockholder andthe closing of its working capital as of March 31,offering in July 2016 that its cash resources will be sufficient to fund the Company’s net cash requirements for the next twelve months from the date thethese condensed consolidated financial statements are issued. 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. There are no assurances that the Company will be able to raise such funds on terms that would be acceptable to the Company.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 and six months ended March 31,June 30, 2016 are not necessarily indicative of the result that may be expected for the year ending December 31, 2016. These condensed consolidated financial statements should be read in conjunction with the financial statements for the year ended December 31, 2015 and related notes thereto included in the Company’s Form 10-K filed with the SECUnited States Securities and Exchange Commission (“SEC”) on March 22, 2016.

Principles of Consolidation

The unaudited interim 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 unaudited interim condensed consolidated financial statements.eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”)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 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(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.

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.

In addition, during the three and six months ended March 31,June 30, 2016, the Company issued 3,400 shares of common stock in the amounts of 0 and 3,400, respectively, at a fair value of $4.00 per share, to customers and the owners of customers. TheIncluded in the costs of all these various programs that were included as a reduction in net sales, includingcosts associated with the fair value of common stock ofshares issued, to customers of $13,600,which totaled $45,165$0 and $10,360$18,338 for the three months June 30, 2016 and 2015, respectively and $45,165 and $28,698 for the six months ended March 31,June 30, 2016 and 2015, respectively.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Customer Marketing Programs and Sales Incentives, continued

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 some cases, the Placement Fees carry no further benefit or minimum revenue guarantee other than the right to place the Company’s product in the store of the customer. The Placement Fees are recorded as a reduction of revenue. If, at the time the Placement Fees are recognized in the statement of operations, the Company has cumulative negative revenue with that particular customer, such negative revenue is reclassified and recorded as a part of selling and marketing expense. For the three and six months ended June 30, 2016, the Company recorded $11,087 and $11,087, respectively, of Placement Fees to selling and marketing expense. No such Placement Fees were recorded in selling and marketing expense for the three and six months ended June 30, 2015.

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 on the condensed consolidated statements of operations and totaled $40,152$161,518 and $11,114,$33,136 for the three months ended March 31,June 30, 2016 and 2015, respectively and $201,670 and $44,250 for the six months ended June 30, 2016 and 2015, respectively.

Advertising

The Company expenses advertising costs as incurred. ForAdvertising expense totaled $20,916 and $116,840, respectively for the three months ended March 31,June 30, 2016 and 2015 advertising expense was $9,631 and $9,653, respectively.$30,547 and $126,493, respectively for the six months ended June 30, 2016 and 2015.

Research and Development

The Company expenses the costs of research and development as incurred. For the three and six months ended March 31,June 30, 2016, research and development expense related to new product initiatives were $46,667.$0 and $46,667, respectively. These expenses 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. There were no research and development expenses incurred during the three and six months ended June 30, 2015. Research and development expenses are included within general and administrative expenses within the condensed consolidated statement of operations. As of March 31,June 30, 2016, $50,000 was included in accrued expenses in the condensed consolidated balance sheets.sheet related to this arrangement.

Operating Leases

The Company records rent related to its operating leases on a straight line basis over the lease term.

Cash and cash equivalents

The Company considers all highly liquid instruments with an original maturity of three months or less when acquired to be cash equivalents.

Restricted cash

Pursuant to the terms of the Credit Agreement with Brentwood LIIT Inc.,Lender, the Company is required to utilize $150,000 of the $1,000,000 proceeds from the Credit Agreement for initiatives related to the development of an alcohol business. As of December 31, 2015, $127,580 of the Company’s cash on hand was restricted for the use in the development of the alcohol business. On March 17, 2016, the LIBB entered into an agreement with Brentwood LIIT Inc.Lender whereby thesuch restriction was lifted.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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. 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.

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 and accounts receivable. At times, the Company’s cash in banks is in excess of the FDICFederal Deposit Insurance Corporation (“FDIC”) insurance limit. The Company has not experienced any loss as a result of these deposits. These cash balances are maintained with one bank. As of March 31,June 30, 2016, one customerthree customers accounted for 16%, 12% and 11% of the Company’s trade receivables.receivables, respectively. As of December 31, 2015, two customers accounted for 14% and 30% of the Company’s trade receivables. The Company does not generally require collateral or other security to support customer receivables. 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 primarily of bottled and packaged iced tea.

The Company values its inventories at the lower of cost or market,net realizable value, net of reserves. Cost is determined using the first-in, first-out (FIFO) method. During the three months ended March 31,June 30, 2016 and 2015, the Company recorded an adjustmentcharges of $14,350$107,062 and $0, respectively, and during the six months ended June 30, 2016 and 2015, the Company recorded charges of $121,412 and $0, respectively, to reduce the cost of certain products to estimated net realizable value. The following table summarizes inventories as of the dates presented:

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 June 30, 2016 and 2015, depreciation expense was $39,004 and $25,116, respectively. For the six months ended June 30, 2016 and 2015, depreciation expense was $77,698 and $49,535, respectively.

Intangible Assets

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually or when circumstances indicate that there could be an impairment. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Intangibles assets with indefinite useful lives consist of the cost to purchase an internet domain name for $20,000. The domain name is considered to have a perpetual life and as such, is not amortized. Insignificant costs incurred associated with renewing this asset are expensed as incurred.

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 $6,243$4,992 and $7,494 as of March 31,June 30, 2016 and December 31, 2015, 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,June 30, 2016, the cost of the website development was $15,000 and the accumulated amortization was $8,757.$10,008. As of December 31, 2015, the cost of the website development was $15,000 and the accumulated amortization was $7,506. For the three months ended March 31, 2016 and 2015, amortizationAmortization expense was $1,251 and $1,251 for the three months ended 2016 and 2015, respectively and $2,502 and $2,502 for the six months ended 2016 and 2015, respectively.

Deferred Financing Costs 

The Company capitalizes issuance costs related to lines of credit as deferred financing costs. The Company amortizes the deferred financing costs over the term of the line of credit.

Deferred Offering Costs

The Company capitalizes the costs related to proposed offerings of its equity instruments as deferred offering costs and records the deferred offering costs as an offset to additional paid in capital upon the completion of the associated capital raising activities.activity.

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.

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'sCompany’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.

Stock Based Compensation

The Company accounts for stock based compensation in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”). ASC 718 establishes accounting for stock-based awards exchanged for employee services. Under the provisions of ASC 718, stock based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s common stock options is estimated using the Black Scholes option-pricing model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life. The Company calculates the expected volatility using the historical volatility of comparable companies over the most recent period equal to the expected term and evaluates the extent to which available information indicates that future volatility may differ from historical volatility. The expected dividend rate is zero as the Company does not expect to pay or declare any cash dividends on common stock. The risk-free rates for the expected terms of the stock options are based on the U.S. Treasury yield curve in effect at the time of the grant. The Company has not experienced significant exercise activity on stock options. Due to the lack of historical information, the Company determined the expected term of its stock option awards issued using the simplified method. The simplified method assumes each vesting tranche of the award has a term equal to the midpoint between when the award vests and when the award expires. The Company expenses stock-based compensation by using the straight-line method.

The Company accounts for stock and other equity instruments granted to consultants using the accounting guidance included in ASC 505-50, “Equity-Based Payments to Non-Employees. In accordance with ASC 505-50, the Company estimates the fair value of equity instruments using the fair value of the Company’s stock or the fair value of the services based upon which measure represents a more reliable measure of the cost incurred.

Earnings per share

Basic net earnings per common share is computed by dividing income/net loss available to common stockholders 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 exercise of stock options.options and warrants. The computation of diluted earnings per share excludes those dilutive securities 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 in periods where the exercise of such options would be antidilutive. For

Potentially dilutive securities outlined in the three months ended March 31, 2016, 194,667 options, 1,550,159 warrants, and 344,483 shares issuable upon conversion of the outstanding debt under Credit Agreement weretable below have been excluded from the computation of earningsdiluted net loss per share because they werethe effect of their inclusion would have been anti-dilutive.

Fair Value of Financial Instruments

The carrying amounts of cash, accounts receivable, accrued expenses and notes payable 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.

Reclassification

Certain reclassifications have been made to the 2015 condensed consolidated financial statements to conform them to the 2016 presentation. These reclassifications had no impact on the Company’s net loss for the periods presented.

Seasonality

The Company’s business is seasonal with the summer months in the second and third quarter of the fiscal year typically generating the largest net sales.

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,Financial Accounting Standards Board (“FASB”), issued ASUAccounting 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 of adopting this standard.

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‘slessee’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 of the new guidance on the condensed consolidated financial statements.

On March 30, 2016, the Financial Accounting Standards Board (“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 is currently evaluating the impact the adoption of this standard will have on its 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 currently evaluating the impact the adoption of this standard will have on its financial statements.

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 currently evaluating the impact the adoption of this standard will have on its financial statements.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Management’s Evaluation of Subsequent Events

The Company evaluates events that have occurred after the balance sheet date but before the condensed consolidated financial statements are issued. Based upon the review, other than as described in Note 11 – Subsequent Events,1, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.

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).products. The Company may terminate the agreement and all obligations to make future payments on ten days’ written notice to Magnum. As of March 31,June 30, 2016 the outstanding balance on the equipment loan was $103,951. As ofand December 31, 2015, the outstanding balance on the equipment loan was $113,104.$95,024 and $113,104, respectively.

NOTE 4 – LINE OF CREDIT

On November 23, 2015 and December 10, 2015, LIBB obtained an aggregate of $1,000,000 in advances from the Lender, constituting the full Available Amount at such time. On March 17, 2016, LIIT, and LIBB its wholly owned subsidiary, entered into the Credit Agreement by and among LIBB, as the borrower, LIIT and the Lender. The Lender is controlledagreed to increase the Available Amount by Eric Watson, a related party, who immediately prior$500,000 to the transactions beneficially owned more than 16%$1,500,000 and approved an additional $500,000 in advances. On March 24, 2016, LIBB obtained $250,000 of the Company’s outstanding common stock. The Credit Agreement provides forapproved advance from the Lender and during May 2016, LIBB obtained the other $250,000 of the approved advances from the Lender, as a revolving credit facility in an initialresult of which the Available Amount was borrowed in full.

As of up to $1,000,000, subject to increases as provided inJune 30, 2016 and December 31, 2015, the Credit Agreement, atoutstanding balance on the discretionline of the Lender, up to a maximum Facility Amount of $5,000,000. The Available Amount may be increased, in increments of $500,000, up to the Facility Amount,credit was $1,669,376 and LIBB may obtain further advances, subject to the approval of the Lender. The proceeds of the credit facility may be used for purposes disclosed in writing to the Lender in connection with each advance.$1,091,571, respectively.

The credit facility bears interest at a rate equal to the prime rate (3.5% at December 31, 2015 and March 31,June 30, 2016) plus 7.5%, compounded monthly, and matures on November 23, 2018. Effective January 10, 2016, the Credit Agreement was amended such that interest was compounded on a quarterly basis. Upon the occurrence of an event of default, the Credit Agreement provides for an additional 8% interest pursuant to the terms of the agreement. The outstanding principal and interest under the credit facility are payable in cash on the maturity date. The Company also paid the Lender a one-time facility fee equal to 1.75% of the Facility Amount, which was capitalized and added to the principal amount of the loan, and will pay the Lender $30,000 for its expenses at the maturity date. The compounded interest and capitalized fees are excluded when determining whether the Available Amount has been exceeded. The credit facility is secured by a first priority security interest in all of the assets of LIIT and LIBB, including the membership interests in LIBB held by LIIT. LIIT also has guaranteed the repayment of LIBB’s obligations under the credit facility. In addition, the credit facility will be guaranteed by Philip Thomas, the Company’s Chief Executive Officer and a director of the Company, in certain limited circumstances up to a maximum amount of $200,000.

In connection with the establishment of the credit facility, the Company issued a warrant to the Lender. The warrant entitled the holder to purchase 1,111,111 shares of the Company’s common stock at an exercise price of $4.50 and included a cashless exercise provision. Upon the closing of the Offering, as part of the Recapitalization, the warrant was exchanged for 486,111 shares of the Company’s common stock (See below and Note 1 – Business Organization, Liquidity and Management’s Plans).

The Lender will have certain “piggyback” registration rights, on customary terms, with respect to the shares of the Company’s common stock issued or issuable upon conversion of the credit facility and upon exchange of the warrant.

The proceeds of the credit facility may be used for purposes disclosed in writing to the Lender in connection with each advance.

The Lender may accelerate the credit facility upon the occurrence of certain events of default, including a failure to make a payment under the credit facility when due, a violation of the covenants contained in the Credit Agreement and related documents, a filing of a bankruptcy petition or a similar event with respect to LIBB or the Company or the occurrence of an event of default under other material indebtedness of LIBB or the Company. The Company and LIBB also made certain customary representations, and warranties and covenants, including negative covenants with respect to the incurrence of indebtedness. As of March 31,June 30, 2016, the Company iswas in compliance with these covenants.

The Lender may elect to convert the outstanding principal and interest under the credit facility into shares of the Company’s common stock at a conversion price of $4.00 per share. The conversion price and the shares of common stock or other property issuable upon conversion of the principal and interest are subject to adjustment in the event of any stock split, stock combination, stock dividend or reclassification of the Company’s common stock, or in the event of a fundamental transaction (as defined in the note evidencing the indebtedness under the credit facility).

In connection with the credit facility, the Company issued a warrant to the Lender. The warrant entitles the holder to purchase 1,111,111 shares of the Company’s common stock at an exercise price of $4.50 and includes a cashless exercise provision. The exercise price and number of shares of the Company’s common stock or property issuable on exercise of the warrants are subject to adjustment in the event of any stock split, stock combination, stock dividend or reclassification of the common stock, or in the event of a fundamental transaction (as defined in the warrant).LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Lender will have certain “piggyback” registration rights, on customary terms, with respect to the shares of the Company’s common stock issuable upon conversion of the credit facility and upon exercise of the warrant.

On November 23, 2015 and December 10, 2015, LIBB obtained an aggregate of $1,000,000 in advances from the Lender, constituting the full Available Amount at such time. On March 17, 2016, LIIT, LIBB and the Lender agreed to increase the Available Amount by $500,000 to $1,500,000. On March 24, 2016, LIBB obtained a $250,000 advance from the Lender and during May 2016, LIBB will obtain another $250,000 advance from the Lender, as a result of which the Available Amount will be borrowed in full. On April 8, 2016, the agreement was amended further (See Note 11).

As of March 31, 2016, the outstanding balance on the line of credit was $1,377,930. The line of credit is convertible at $4.00 per share of common stock into 344,483 shares of common stock. As of December 31, 2015, the outstanding balance on the line of credit was $1,091,571.NOTE 4 – LINE OF CREDIT, continued

Deferred financing costs related to the Credit Agreement, which are included in the accompanying condensed consolidated balance sheet, are amortized over the three year term of the line of credit agreement. As of March 31,June 30, 2016, the gross carrying amount of deferred financing costs werewas $1,903,879 with accumulated amortization of $224,453.$383,110. As of December 31, 2015, the gross carrying amount of deferred financing costs were $1,903,879 with accumulated amortization of $65,797.

During April 2016, the Company entered into amendment to the agreement with the Lender, which provided for the Recapitalization. Upon a capital raise of at least $5,000,000, the Lender agreed to convert all of the outstanding principal and interest under the Credit Facility into 421,972 shares of common stock (assuming all approved advances are completed and there are no further advances by the Lender) at the closing of the offering. In addition, the Lender agreed to exchange its 1,111,111 warrants for 486,111 shares of common stock at such time. The Credit Facility would remain outstanding except that the Facility Amount would be reduced to $3,500,000.Any amounts drawn from the Facility Amount require lender approval. The Recapitalization was effectuated upon the closing of the Offering.

Upon the closing of the Offering, as part of the Recapitalization, the outstanding principal and interest under the credit facility was converted into 421,972 shares of the Company’s common stock. The Lender may elect to convert any future outstanding principal and interest under the credit facility into shares of the Company’s common stock at a conversion price of $4.00 per share (See Note 1 – Business Organization, Liquidity and Management’s Plans).

In addition, the Company and LIBB entered into an Amendment No. 1 (the “Registration Rights Amendment”) to the Registration Rights Agreement (the “Registration Rights Agreement”), dated as of December 3, 2015, by and among LIBB, the Company and the Lender. The Registration Rights Amendment amended the Registration Rights Agreement, effective as of the closing of a Qualified Public Offering, so that the “piggyback” registration rights granted to the Lender thereunder will apply to the shares issuable in the Recapitalization.

NOTE 5 – STOCKHOLDERS’ EQUITY

From January 1, 2016 to March 14, 2016, the Company sold 171,725 units to investors at $4.00 per unit for gross proceeds of $686,900. Each unit consists of one share of common stock and a warrant to purchase one share of common stock. The Company incurred costs of $60,110 related to these sales resulting in net proceeds of $626,790. As part of these sales 25,000 units were sold to Thomas Cardella, who subsequently became a member of the Company’s Board of Directors, and 7,500 shares were sold to Paul Vassilakos, a member of the Board of Directors. The sales were part of a private placement of up to $3,000,000 of units (the “Second Offering”) conducted by the Company on a “best efforts” basis through a placement agent (the “Placement Agent”) that commenced on November 24, 2015. The Offering terminated on March 14, 2016.

The Placement Agent for the Second Offering was paid a commission equal to 10% of the aggregate purchase price from the Units sold to investors introduced to the Company by the Placement Agent. The Company also paid the Placement Agent a non-accountable expense allowance equal to 3% of the aggregate purchase price from the Units sold to (i) investors introduced to the Company by the Placement Agent and (ii) investors not introduced to the Company by the Placement Agent who purchase less than $500,000 of Units in the aggregate (together, the “Covered Investors”). From March 1, 2016 through March 14, 2016, the Placement Agent was only entitled to a 3% non-accountable allowance for investors introduced by our Company to the Placement Agent. In addition, the Placement Agent received warrants to purchase a number of shares of Common Stockcommon stock equal to 10% of the total shares of Common Stockcommon stock included in the Units sold in the Second Offering to the Covered Investors, with an exercise price of $4.50 per share.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 – STOCKHOLDERS’ EQUITY, continued

Each warrant issued pursuant to the Second Offering entitles the holder to purchase one share of the Company’s common stock at an exercise price of $6.00 per share, commencing immediately and expiring on November 30, 2018. The exercise price and number of shares of common stock issuable on exercise of the warrants are subject to standard anti-dilution provisions. The Company, at its option, may call the warrants for redemption, in whole and not in part, at a price of $0.01 per warrant, if (i) the closing price per share of the common stock is at least $10.00 for 30 consecutive trading days ending on the third business day prior to the notice of redemption or (ii) the common stock is listed for trading on a national securities exchange and the closing price per share of common stock on the first day of trading on such exchange is at least $7.50. The right to exercise will be forfeited unless the warrants are exercised prior to the date specified in the notice of redemption. On and after the redemption date, a record holder of a warrant will have no further rights except to receive the redemption price for such holder’s warrant upon surrender of such warrant.

During the year ended December 31, 2015 and through March 14, 2016, the Company sold 345,725 units through the Placement Agent. As a result, on March 29, 2016, 34,573 warrants were issued to the Placement Agent. The warrants have an exercise price of $4.50 per share and expire on October 30, 2020.

On March 29, 2016 and March 31, 2016, the Company entered into subscription agreements for the sale of 58,750 units for gross proceeds of $235,000 at $4.00 per unit, including 2,500 units sold to family members of Philip Thomas, CEO and a member of the Board of Directors and 2,500 to a relative of Thomas Panza, , a greater than 10% owner of the Company (the “March Sales”). Each unit consists of one share of common stock and a warrant to purchase one share of common stock. As of March 31, 2016,Such subscriptions receivable related to these sales were $120,000. The proceeds from the subscriptions receivable were receivedclosed and funded during April 2016.

Each warrant issued in the March Sales entitles the holder to purchase one share of the Company’s common stock at an exercise price of $6.00 per share, commencing immediately and expiring on March 29, 2019. The exercise price and number of shares of common stock issuable on exercise of the warrants are subject to standard anti-dilution provisions. The Company, at its option, may call the warrants for redemption, in whole and not in part, at a price of $0.01 per warrant, if (i) the closing price per share of the common stock is at least $10.00 for 30 consecutive trading days ending on the third business day prior to the notice of redemption or (ii) the common stock is listed for trading on a national securities exchange and the closing price per share of common stock on the first day of trading on such exchange is at least $7.50. The right to exercise will be forfeited unless the warrants are exercised prior to the date specified in the notice of redemption. On and after the redemption date, a record holder of a warrant will have no further rights except to receive the redemption price for such holder’s warrant upon surrender of such warrant.

During the year ended December 31, 2015, the Company entered into agreements with four members of its Advisory Board. Upon signing the agreement, each Advisory Board Member was entitled to receive 7,500 shares of common stock. These shares were issued on January 26, 2016.

In addition, onOn January 26, 2016, 35,824 shares of common stock were issued to the non-employee members of the Board of Directors in relation toas compensation for their services with the Company during the year ended December 31, 2015.

On March 31, 2016, the Company issued 3,400 shares of common stock at $4.00 per share to customers of the Company. As a result, for the three months ended March 31, 2016, the Company recorded $13,600 as a reduction to net sales in the accompanying condensed consolidated statements of operations.

On March 31, 2016, the Company issued 1,200 shares of common stock at $4.00 per share to suppliers of the Company. As a result, for the three months ended March 31, 2016, the Company recorded $4,800 in cost of goods sold in the accompanying condensed consolidated statements of operations.

On March 31, 2016, the Company issued 2,000 shares of common stock at $4.00 per share to brokers of the Company. As a result, for the three months ended March 31, 2016, the Company recorded $8,000 in selling and marketing expenses in the accompanying condensed consolidated statements of operations.

On March 31, 2016, the Company issued 6,700 shares of common stock at $4.00 per share to consultants of the Company. For the three and six months ended March 31,June 30, 2016, the Company recorded $0 and $26,800, respectively, in general and administrative expenses in the condensed consolidated statements of operations.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 – STOCKHOLDERS’ EQUITY, continued

On March 31, 2016, the Company issued 5,000 shares of common stock at $4.00 per share to a consultant pursuant to a consulting services agreement. The terms of the agreement require the consultant to perform services for the Company through February 23, 2017. AsFor the three and six months ended June 30, 2016, the Company recorded $0 and $5,455 of market research expense (reflected in selling and marketing expenses in the Condensed Consolidated Statement of Operations) and as a result, $20,000$14,545 was included in prepaid expenses in the accompanying balance sheet as of March 31,June 30, 2016.

On March 31, 2016, the Company issued 15,833 shares of common stock at $4.00 per share to a consultant, who also became a member of the Company’s Advisory Board on March 31, 2016. The shares were issued pursuant to a consulting agreement for future services. AsFor the three and six months ended June 30, 2016, the Company recorded $0 and $63,332 of market research expense and as a result, $63,332,$0, was included in prepaid expenses in the accompanying balance sheet as of March 31,June 30, 2016. In addition, pursuant to the terms of the consulting agreement, the Company was required to make an advance payment of $20,000 which was made during April 2016. In addition the consultant will be paid an additional $30,000 in cash upon completion of theirthe consultant’s services.

On March 31, 2016, the Company issued 7,500 shares of common stock to an employee of the Company at $4.00 per share. During the three and six months ended theJune 30, 2016, $0 and $30,000 incurred was included in selling and marketing expenses in the accompanying condensed consolidated statements of operations related to this issuance.

On April 6, 2016, $56,250 of proceeds was received from a shareholder who had purchased shares in September 2015 representing the disgorgement of a short swing profit on the shareholder’s September 2015 sale of the Company’s stock.

NOTE 6 – STOCK OPTIONSBASED 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. The total number of shares of common stock reserved under the Plan are 466,667.

On May 27, 2015, as part of their employment agreements but not under the 2015 Stock Option Plan, the Company granted the officers of the Company and Mr. Panza, options to purchase 194,667 shares at an exercise price of $3.75 which are exercisable until May 26, 2020. These options vest on a quarterly basis over the two year period from the date of issuance. These options were not issued under the 2015 Stock Option Plan.

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.stock on June 30, 2016.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 – STOCK BASED COMPENSATION, continued

As of March 31,June 30, 2016, there was a total of $699,807$548,453 of unrecognized compensation expense related to unvestedstock options. The cost is expected to be recognized through 2017 over a weighted average period of 1.150.90 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. For the three months ended March 31, 2016, the Company recorded stock based compensation of $151,354 related to the issuance of these options.Stock Warrants

The Black Scholes option pricing model was used to estimate fair value as of the date of grants during 2015 using the following assumptions: a stock price of $8.70, a dividend yield of 0%, expected volatility of 79%, a risk free interest rate of 0.99%, and an expected life of 3.25 years. The simplified method was used to determine the expected life as the granted options as the options were considered to be plain-vanilla options.

NOTE 7 – STOCK WARRANTS

During the three months ended March 31, 2016, the Company issued 265,048 warrants (See Note 5), which are all exercisable.

The following table summarizes the stock warrant activity of the Company:

Stock-Based Compensation Expense

The following tables summarize total stock-based compensation costs recognized for the three and six months ended June 30, 2016 and 2015:

The total amount of stock-based compensation was reflected within the statements of operations as:

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 87 – 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 the ordinary course of business will not have a material adverse effect on the Company’s 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 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. The Company’s management and legal counsel believe it is too early to determine the probable outcome of this matter.

On October 3, 2014, an action was filed by Madwell LLC in the Supreme Court of New York entitled Madwell LLC v. Long Island Brand Beverages LLC, Philip Thomas, its Chief Executive Officer, and Paul Vassilakos, Cullen’s former Chief Executive Officer and one of the Company’s directors. Madwell was seeking $940,000, which included $440,000 for breach of contract and payment of services as well as punitive damages of $500,000. On July 31, 2015, the Company entered into a settlement agreement with Madwell. Pursuant to the settlement agreement, the Company agreed to pay Madwell $440,000 in six installments with the last installment due no later than December 31, 2015. In addition, Madwell agreed to discontinue its lawsuit and the parties agreed to mutual releases of liability related to fees for advertising, marketing and design services or any matter relating to the lawsuit. As of the date of this filing, the full amount has been paid to Madwell. In addition, the Company indemnified Mr. Vassilakos for a de minimis amount of expenses incurred by him in connection with this litigation. During January 2016, wethe Company made the final installment payment of $80,000 in settlement of the matter.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 – COMMITMENTS AND CONTINGENCIES, continued

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. Commissions to these brokers currently range from 2-5% of sales. In addition, the Company sells its products through alternative vending channels. Commissions resulting from sales through these channels are currently 42%.

Employment Agreements

On May 27, 2015, the Company entered into employment agreements with Messrs. Thomas, Dydensborg and Meehan to serve as Chief Executive Officer, Chief Operating Officer and Chief Accounting Officer, respectively. Each has a term of two years except the agreements with Messrs. Dydensborg and Meehan provide that either the Company’s or the executive can terminate the agreement with six months’ advance notice (or three months’ advance notice, in the case of Mr. Meehan). The employment agreements will provide for Messrs. Thomas, Dydensborg and Meehan to receive base salaries of $150,000, $130,000 and $120,000. Additionally, each is entitled to an incentive bonus at the discretion of the Board of Directors of up to 50%, 40% and 25% of such individual’s base salary, respectively.

On May 27, 2015, the Company entered into an employment agreement with Thomas Panza, a stockholder of the Company to serve as LIBB’s Purchasing Manager. The agreement has a term of two years except that either LILBB or Mr. Panza can terminate the agreement with six months’ advance notice. Mr. Panza will receive a base salary of $80,000 and an incentive bonus of up to 50% of his base salary at the discretion of the Board of Directors.

On February 1, 2016, the Company entered into an agreement with an employee. The employee is to be paid a base salary of $120,000 per annum through December 31, 2018. In addition, the employee was awarded 7,500 shares of common stock at the inception of the agreement (See Note 5). In addition, at December 31, 2016, the employee will be paid a bonus between 20% and 40% of the employee’s base salary, with the amount above 20% to be determined at the discretion of the board.

Consulting AgreementsBoard of Directors.

On June 17, 2015, the Company announced that it had determined to explore potential opportunities in expanding the business into alcoholic beverages. In connection with the proposed expansion, the Company engaged Julian Davidson as a consultant to spearhead this new initiative. The Company will reimburse Julian Davidson for reasonable business expenses. In the event the Company raises $10,000,000, Julian Davidson would become an employee of the Company.

During the year ended December 31, 2015,6, 2016, the Company entered into agreementsan employment agreement with four membersRichard Allen to serve as the Company’s Chief Financial Officer. The agreement has a term of three years, and automatically renews for one year periods thereafter unless either party provides notice of its Advisory Board. Upon signingdecision not to renew. Mr. Allen will receive a base salary of $170,000 and an incentive bonus of up to 50% of his base salary at the discretion of the Board of Directors. Furthermore, the Company will grant Mr. Allen 8,333 shares of its common stock on May 31, 2017 and the number of shares of the Company’s common stock having a fair market value equal to $50,000 on each of May 31, 2018 and 2019.

Consulting Agreements

On June 6, 2016, the Company entered into an amendment to the consulting agreement each Advisory Board Member was entitledwith Julian Davidson which provides for him to receive 7,500serve 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 amended, the Company will (a) pay to Mr. Davidson $10,000 per month, and (b) grant to Mr. Davidson 1,667 shares of common stock to be paid at December 31, 2015. These shares were issued on January 26, 2016. For each year of service after December 31, 2015, the Advisory Board members will be entitled to receive $30,000 worth of common stock and $12,000 in cash on an annual basis. In addition, the members will be entitled to reimbursement of expenses and $1,000per month. The consulting agreement contains provisions for each meeting attended. The agreements can be terminated by either party with 30 days notice. On March 31, 2016, the Company added one member to the Advisory Board. In addition, one member of the Advisory Board became a memberprotection of the Company’s Boardintellectual property and confidentiality and non-competition restrictions for Mr. Davidson (generally imposing restrictions during the term of Directors. During the three months ended March 31, 2016,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 incurred $45,000Company’s customers, and (iv) soliciting prospective acquisition and investment candidates for purposes of acquiring or investing in costs which are included in general and administrative expenses in the condensed consolidated statements of operations.such entity).

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 98 – MAJOR CUSTOMERS AND VENDORS

For the three months ended March 31,June 30, 2016, two customers accounted for 16%15% and 12% of net sales, respectively. In addition, the Company collects vending proceeds based on contracts in certain school districts. Sales within one school district accounted for 13% of our net sales during the three months ended March 31, 2016.sales. For the three months ended March 31,June 30, 2015, two customer accounted for 11% and 10% of net sales, respectively.

For the six months ended June 30, 2016, one customer accounted for 12% of net sales. For the six months ended June 30, 2015, no customers accounted for more than 10% of net sales.

For the three months ended March 31,June 30, 2016 and March 31,June 30, 2015, the largest vendors represented approximately 71%68% (four vendors) and 81% (three86% (four vendors) of purchases, respectively. For the six months ended June 30, 2016 and June 30, 2015, the largest vendors represented approximately 70% (four vendors) and 69% (four vendors) of purchases, respectively. As of March 31,June 30, 2016 one suppliertwo suppliers accounted for 20% and 10% of accounts payable.payable, respectively.

NOTE 109 - RELATED PARTIES

During the year ended December 31, 2015, the Company entered into the Credit Agreement with the Lender, a related party (see Note 4.)4).

The Company recorded revenue related to sales to two entities, whose owners became employees of the Company during 2014. For the three months ended March 31,June 30, 2016 and 2015, sales to these related parties were $-$150 and $7,959, respectively.$23,236, respectively and $114 and $31,195, respectively for the six months ended June 30, 2016 and 2015. As of March 31,June 30, 2016, accounts receivable from these customers were $11,287.$9,573. As of December 31, 2015, accounts receivable from these customers were $15,513.

The Company recorded revenue related to sales to an entity, CFG Distributors LLC, whose owner became an employee of the Company during 2015. For the three months ended March 31,June 30, 2016 and March 31,June 30, 2015, sales to this related party were $404$33 and $10,758,$216, respectively. For the six months ended June 30, 2016 and June 30, 2015, sales to this related party were $438 and $10,974, respectively. As of March 31,June 30, 2016, the amount due from this customer was $50,270, with $12,000 included in accounts receivable and $38,270 included in other assets due to the expected timing of collection.$47,681. As of December 31, 2015, accounts receivable from this customer were $51,961.$51,961, which was included in accounts receivable.

In addition, 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,June 30, 2016 and 2015, sales to this related party were $1,158$1,479 and $1,498,$1,363, respectively. For the six months ended June 30, 2016 and 2015, sales to this related party were $2,637 and $2,861, respectively. As of March 31,June 30, 2016 and December 31, 2015, there was $1,610$1,331 and $518, respectively, due from this related party which was included in accounts receivable in the condensed consolidated balance sheets. The Company also purchases product to supplement certain vending sales from this entity. For the three and six months ended March 31,June 30, 2016, the Company purchased $8,258$9,255 and $17,514, respectively, of product from this vendor. As of March 31,June 30, 2016, the outstanding balance due to this entity included in accounts payable was $2,724.$1,197. As of December 31, 2015, the outstanding balance due to this entity included in accounts payable was $3,242.

During the three and six months ended March 31,June 30, 2016, the Company accrued $65,000$90,000 and $155,000, respectively, in expenses related to fees payable to the Company’s Board of Directors which were included in general and administrative expenses in the condensed consolidated statements of operations. The non-employee members of the Board of Directors will receive $35,000 worth of stock for their services and $30,000 in cash for their services through 2016.

A stockholder and a company owned by member of the Board of Directors of the Company has paid certain expenses on behalf of the Company. As of March 31,June 30, 2016, the accounts payable and accrued expenses due to these parties were $59,867.$296,023. As of December 31, 2015 accounts payable and accrued expenses to these parties were $87,258.

NOTE 11 - SUBSEQUENT EVENTS

On April 8, 2016 the Company filed a registration statement on Form S-1 with the SEC to raise additional capital. No assurance can be given that such offering will be consummated, or if consummated, will raise the maximum amount contemplated thereunder.

During April 2016, the Company entered into an agreement with the Lender (See Note 4). Upon a capital raise of at least $5,000,000, the Lender has agreed to convert all of the outstanding principal and interest under the Brentwood Note into 421,972 shares of our common stock (assuming all approved advances are completed and there are no further advances by the Lender) at the closing of the offering. In addition, the Lender will exchange its 1,111,111 warrants for 486,111 shares of common stock at such time. The Credit Facility will remain outstanding except that the Facility Amount will be reduced to $3,500,000. The Recapitalization will occur only if the gross proceeds from the offering are at least $5,000,000 (“A Qualified Public Offering”). 

In addition, the Company and LIBB entered into an Amendment No. 1 (the “ Registration Rights Amendment ”) to the Registration Rights Agreement (the “Registration Rights Amendment ”), dated as of December 3, 2015, by and among LIBB, the Company and the Lender. The Registration Rights Amendment amended the Registration Rights Agreement, effective as of the closing of a Qualified Public Offering, so that the “piggyback” registration rights granted to the Lender thereunder will apply to the shares issuable in the Recapitalization.

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 or incorporated by reference in this quarterly report 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 II of this quarterly report. 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 ready-to-drink (“RTD”) iced tea in the beverage industry. We are currently organized around our flagship brand Long Island Iced Tea, a premium RTD tea made from a proprietary recipe and with quality components sold primarily on the East Coast of the United States through a network of national and regional retail chains and distributors. 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 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 towards alternative beverages such as iced tea.

In addition, we have begun exploring entry into the $215 billion U.S. alcohol industry, with the hope to establish ourselves as multi-beverage alcohol and non-alcohol company. 

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

Public Offering

On July 28 and 29, 2016, we sold 1,270,156 shares (the “Shares”) of common stock, in our public offering of up to 1,818,182 shares of common stock at an offering price of $5.50 per share, through Network 1 Financial Services, Inc., acting as selling agent on a “best efforts” basis, pursuant to the Company’s registration statement on Form S-1 (File No. 333-210669) (the “Offering”). The sale of the shares generated gross proceeds of $6,985,858 and net proceeds of $6,084,831 after deducting commissions and other offering expenses. In connection with sale of the shares, the common stock was approved for listing on the NASDAQ Capital Market under its current symbol, “LTEA.” On August 4, 2016, the Offering was terminated. No further sales of shares were made in the Offering.

As part of our selling agent’s compensation for the sale of the Shares, the Company will issue to them warrants to purchase an aggregate of 31,754 shares of common stock. The warrants will be exercisable for cash or on a cashless basis at an exercise price of $6.875 per share, commencing on January 14, 2017 and expiring on July 14, 2021. The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, stock split or the Company’s recapitalization, reorganization, merger or consolidation. The warrants contain provisions for one demand registration of the sale of the underlying shares of common stock at the Company’s expense, an additional demand registration at the warrant holders’ expense, and unlimited “piggyback” registration rights at the Company’s expense until July 28, 2021.

Line of Credit

We are party to a Credit and Security Agreement (the “Credit Agreement”) with LIBB, our wholly owned subsidiary, as the borrower, and Brentwood LIIT (NZ) Ltd. (as successor in interest to Brentwood LIIT Inc.), as the lender (the “Lender” or “Brentwood”). The Credit Agreement provides for a revolving credit facility (the “Credit Facility”). The loans made by Brentwood under the credit facility are evidenced by a secured convertible promissory note (the “Lender Note”). In addition, in connection with the establishment of the credit facility, the Company issued to Brentwood a warrant (the “Lender Warrant”) to purchase 1,111,111 shares of common stock, at an exercise price of $4.50 per share, expiring on November 23, 2018. The amount available to be advanced under the Credit Facility (the “Available Amount”) may be increased from time to time, in increments of $500,000, up to a specified maximum (the “Facility Amount”), and we may obtain advances under the Credit Facility, subject to the approval of Brentwood. As of immediately prior to the closing of the Offering, the principal amount of loans outstanding, including capitalized interest and fees (both of which are excluded when determining whether the Available Amount has been reached), was $1,669,376.

Upon the closing of the Offering, the Company completed a recapitalization transaction (the “Recapitalization”) with the Lender. Pursuant to the Recapitalization, all of the outstanding principal and interest under the Lender Note was converted into 421,972 shares of common stock and the Lender Warrant was exchanged for 486,111 shares of common stock. The Company may continue to request advances under the credit facility subject to the terms and conditions of the Credit Agreement, except that the Facility Amount was reduced from $5,000,000 to $3,500,000. Brentwood is owned by Eric Watson, who as of August 10, 2016 beneficially owned approximately 18.5% of our outstanding common stock, and KA#2 Ltd., which as of August 10, 2016 beneficially owned approximately 4.8% of our outstanding common stock.

Private Issuances

Simultaneously with the closing of the Offering, the Company issued 1,667 shares to Julian Davidson, the Company’s Executive Chairman, 10,000 shares to Richard Allen, the Company’s Chief Financial Officer, and 5,000 shares to John Carson, a member of the Company’s advisory board, as compensation for services to the Company.

Intellectual Property

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

Line of Credit

On November 23, 2015, we entered into a Credit and Security Agreement (the “Credit Agreement”) with LIBB, our wholly owned subsidiary, as the borrower, and Brentwood LIIT Inc., as the lender (the “Lender” or “Brentwood”). The Credit Agreement provides for a revolving credit facility (the “Credit Facility”). The amount available to be advanced under the Credit Facility (the “Available Amount”) may be increased from time to time, in increments of $500,000, up to a maximum of $5,000,000 (the “Facility Amount”), and we may obtain advances under the Credit Facility, subject to the approval of Brentwood. In March 2016, Brentwood approved an increase of $500,000 in the Available Amount under the Credit Agreement and approved advances in the same amount. Advances in the amount of $250,000 were received, and the additional $250,000 will be received in May 2016. The aggregate Available Amount currently is $1,500,000, all of which will have been loaned to us upon completion of the final advance.

Board of Directors and Strategic Advisory Board

The Company has established a Strategic Advisory Board of business and industry professionals to help guide the Company’s business and market development. On March 31, 2016, the Company added Bert Moore to its Advisory Board.

On April 1, 2016, the board of directors (the “ Board ”)“Board”) of Long Island Iced Tea Corp. (the “ Company ”)“Company”) adopted a resolution expanding the size of the Board from five to six directors and appointed Tom Cardella as a Class 2 director (with a term expiring in 2017) to fill the newly created directorship.

Proposed Public Offering

On April 8, 2016 we filed a registration statement on Form S-1 with the SEC to raise additional capital (the “Proposed Offering”). No assurance can be given that such offering will be consummated, or if consummated, will raise the maximum amount contemplated thereunder.

In connection with the Proposed Offering, Brentwood has agreed to restructure certain of our obligations under the Credit Agreement and related documents. The loans under the Credit Facility are evidenced by a secured convertible promissory note (the “Brentwood Note”). Brentwood may convert the outstanding principal and interest under the Brentwood Note into shares of our common stock at a conversion price of $4.00 per share. In addition, in connection with the establishment of the Credit Facility, we issued a warrant (the Brentwood Warrant”) to Brentwood. The Brentwood Warrant entitles the holder to purchase 1,111,111 shares of common stock at an exercise price of $4.00 per share. Pursuant to an amendment to the Credit Agreement signed in April 2016, Brentwood has agreed to convert all of the outstanding principal and interest under the Brentwood Note into 421,972 shares of our common stock (assuming all approved advances are completed and there are no further advances by Brentwood) at the closing of such offering. In addition, Brentwood will exchange the Brentwood Warrant for 486,111 shares of common stock at such time (together with the conversion of the Brentwood Note, the “Recapitalization”). The Recapitalization will occur only if the gross proceeds from the Proposed Offering are at least $5,000,000.

Highlights

We generate income through the sale of our iced teas. The following are highlights of our operating results for the three and six months ended March 31,June 30, 2016:

Historically, our cash generated from operations has not been sufficient to meet our expenses. Accordingly, we have historically financed our business through the sale of equity interests or through the issuance of promissory notes. During the threesix months ended March 31,June 30, 2016, our cash flows used in operations were $768,912$1,515,407 and our net cash provided by financing activities was $924,574.$1,347,132. We had a working capital deficit of $763,090$788,065 as of March 31,June 30, 2016.

In order to execute our long-term growth strategy, 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.

Uncertainties and Trends in Our Business

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

Please refer to risks factors described in this Item 2 of Part I of this quarterly report and in Item 1A of Part II of this quarterly report.

Critical 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 and rebates paid to customers. 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.

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.

Accounts ReceivableAdditionally, 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.

The Company sells products to distributors and in certain cases directly to retailers, and extends credit, generally without requiring collateral, based on its evaluationResults 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.Operations

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. The Company values its inventories at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method.

Results of Operations

Comparison of the three months ended March 31,Three Months Ended June 30, 2016 and March 31,June 30, 2015

Net Sales and Gross Profit

Net sales for the three months ended March 31,June 30, 2016 increased by $243,447,$927,932, or 92%137%, to $508,169$1,603,667 as compared to $264,722$675,735 for the three months ended March 31,June 30, 2015. Included in our net sales was a reduction to net sales of $13,600 related to a non-recurring issuance of common stock to certain distributors. In the absence of this issuance of common stock, sales would have increased to $521,769 for the three months ended March 31, 2016. The increase is primarily due to a combination of brand momentum and an increase in distribution. The increase was also bolstered by the sale of the Company’s product line in gallon containers. Net sales of our product in gallons during the three months ended March 31,June 30, 2016 were approximately $149,000$439,979 as compared to $0$69,938 for the three months ended March 31,June 30, 2015. In addition, the Company purchased vending machines in the fourth quarter of 2015. Sales of our iced tea products as well as other products purchased from vendors were approximately $64,000$71,353 during the three months ended March 31,June 30, 2016 as compared to $0 for the three months ended March 31,June 30, 2015. We also began selling certain juice products in the first quarter of 2016. Sales of these products were approximately $24,000$358,000 during the three months ended March 31,June 30, 2016. The remainder of the increase was due to increased distribution, including in the Midwest of the United States.

Gross profit decreased by $30,862, or 43%, from $71,413 for the three months ended March 31, 2015 to $40,551 for the nine months ended SeptemberJune 30, 2015. Our gross profit percentage2016 decreased by 19%$142,130, or 91%, to $14,797 as compared to $156,927 for the three months ended March 31, 2016 as compared toJune 30, 2015. Gross profit percentage decreased by 22% from 23% for the three months ended March 31, 2015.June 30, 2015 to 1% for the three months ended June 30, 2016. The decrease was due toon account of credit the fact thatCompany received during the three months ended March 31,June 30, 2015 the Company received a credit of $120,000 from one of the Company’s vendors related to production issues. The cost of the inventory affected by these production issues was reduced by $91,523 resulting in a positive net impact of $28,477 (4% of net sales for the three months ended June 30, 2015) on our gross profit in the prior year.three months ended June 30, 2015. The decrease in our margins for the three months ended June 30, 2016 was further due to a charge of $107,032 (7% of revenue for the three months ended June 30, 2016) we took for an adjustment to write down our gallon size product inventory on hand to net realizable value.

General and administrative expenses

General and administrative expenses for the three months ended June 30, 2016 increased by $611,351, or 154%, to $1,009,576 as compared to $398,225 for the three months ended June 30, 2015. During the three months ended June 30, 2016, the Company’s general and administrative salaries increased by $80,801 as compared to the three months ended June 30, 2015. In addition, the Company incurred $105,740 in stock based compensation expense that was allocated to general and administrative expenses during the three months ended June 30, 2016. This was primarily the result of officers’ salaries including the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer of the Company. The remaining increase in general and administrative expenses was caused primarily by increases in rent, insurance, and other administrative costs.

Selling and marketing expenses

Selling and marketing expenses for the three months ended June 30, 2016 increased by $468,531, or 113%, to $884,083 as compared to $415,552 for the three months ended June 30, 2015. Selling and marketing expenses increased largely due to an increase in costs of $118,787 due to a market study to explore the market potential of expanding into alcoholic beverages. There was also an increase in selling salaries of $109,787 during the three months ended June 30, 2016 as compared to the three month ended June 30, 2015. The Company also paid $11,087 in placement fees for the three months ended June 30, 2016 to a retailer to reserve shelf space ahead of actual sales of product to the retailer.

Interest expense

Interest expense for the three months ended June 30, 2016 increased by $179,995, or 772%, to $203,304 as compared to $23,309 for the three months ended June 30, 2015. The increase was primarily the result of the Credit Facility with Brentwood and the related amortization of deferred financing costs associated with the agreement.

Comparison of the Six Months Ended June 30, 2016 and June 30, 2015

Net Sales and Gross Profit

Net sales for the six months ended June 30, 2016 increased by $1,171,379, or 125%, to $2,111,836 as compared to $940,457 for the six months ended June 30, 2015. The increase is due to a combination of brand momentum and an increase in distribution. The increase was also bolstered by the sale of the Company’s product line in gallon containers. Net sales of our product in gallons during the six months ended June 30, 2016 were approximately $589,233 as compared to $69,938 for the six months ended June 30, 2015. In addition, the Company purchased vending machines in the fourth quarter of 2015. Sales of our iced tea products as well as other products purchased from vendors were approximately $135,311 during the six months ended June 30, 2016 as compared to $0 for the six months ended June 30, 2015. We also began selling certain juice products in the first quarter of 2016. Sales of these products were approximately $382,000 during the six months ended June 30, 2016. The remainder of the increase was due to increased distribution, including in the Midwest of the United States.

Gross profit decreased by $172,992, or 76%, to $55,348 for the six months ended June 30, 2016 from $228,340 for the six months ended June 30, 2015. Our gross profit percentage decreased by 22% for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. The decrease was on account of a credit the Company received during the six months ended June 30, 2015 of $120,000 from one of the Company’s vendors related to production issues. The cost of the inventory affected by these production issues was reduced by $91,523 resulting in a positive net impact of $28,477 (4% of net sales for the three months ended June 30, 2015) on our gross profit in the six months ended June 30, 2015. Furthermore, during May 2015 and January 2016, we introduced five of our flavors in gallon containers. Sales of our gallon containers carry lower margins than our standard 20 ounce containers.were sold at introductory pricing, some of which was below cost. As a result, our margins during the threesix months ended March 31,June 30, 2016 as compared to the threesix months ended March 31,June 30, 2015 were negatively impacted by the introductioninclusion of gallon container sales into our sales mix. In addition, during the threesix months ended March 31,June 30, 2016, the Company recorded an adjustment of $14,350$121,412 to reduce the cost of certain productsgallon product inventory on hand to estimated net realizable value. These negative factors were partially offset by sales through vending machines which typically carry higher margins.

General and administrative expenses

General and administrative expenses for the threesix months ended March 31,June 30, 2016 increased by $558,242,$1,169,593, or 254%189%, to $777,665$1,787,241 as compared to $219,423$617,648 for the threesix months ended March 31,June 30, 2015. During the threesix months ended March 31, 2016, costs incurred related to our Board of Directors and Advisory Board were $110,000, which consisted of fees to be paid in cash and common stock to the directors and Advisory Board members, as compared to $0 during the three months ended March 31, 2015. During the three months ended March 31,June 30, 2016, the Company’s general and administrative salaries and stock based compensation increased by $28,700$281,442 as compared to the threesix months ended March 31,June 30, 2015. This was primarily the result of the increase in the Chief Executive Officer’s salary, which took place on May 27, 2015 in connection with the consummation of the business combination between us, LIBB and Cullen. In addition, the Company incurred $105,740 in stock based compensation expense that was allocated to general and administrative expenses during the three months ended March 31, 2016. Legal and professional fees increased by $97,536$161,770 which included fees paid to consultants of the Company of $55,800 who advise us in capital raising as well as increased accounting and legal costs related to the filing of our 10-K.SEC report filings. Additionally, during the threesix months ended March 31,June 30, 2016, the Company incurred $46,667 related to the costs of its alcohol development contract. The remainder of the cost increases primarily related to rent and storage fees, insurance costs, website and internet costs, press release costs and filing fees related to becoming a public company on May 27, 2015, and increases in depreciation expense related to the purchase of vending machines in the fourth quarter of 2015.

Selling and marketing expenses

Selling and marketing expenses for the threesix months ended March 31,June 30, 2016 increased by $278,762,$747,293, or 134%120%, to $486,543$1,370,626 as compared to $207,781$623,333 for the threesix months ended March 31,June 30, 2015. Selling and marketing expenses increased largely due to increased selling salaries of $142,000approximately $269,000 primarily related to the hiring of new employees, including a national vice president. Included in this amount was $30,000 of stock based compensation to this employee. In addition, stock based compensation allocated to selling and marketing expenses related to stock options increased by $45,613.$74,171. Additionally sales commissions paid to brokers increased by approximately $31,000$55,610 due to stock issued to brokers worth $8,000 and the increase in commissions related to our sales through vending machines. Freight out increased by $29,038$156,157 during the threesix months ended March 31,June 30, 2016 as compared to the threesix months ended March 31,June 30, 2015 due to increased volume as well as increased freight rates resulting from shipments from a storage facility located in Georgia. Demo expenses also increased by approximately $25,000 as a result of demos put on in support of our gallon brand. The remainder of the increase was caused by various other marketing expenses.

OtherInterest expense

Other expense, which consisted of interestInterest expense for the threesix months ended March 31,June 30, 2016 increased by $170,538,$350,533, or 746%759%, to $193,413$396,717 as compared to $22,875$46,184 for the threesix months ended March 31,June 30, 2015. The increase was primarily the result of the Credit Facility with Brentwood and the related amortization of deferred financing costs associated with the agreement.

Liquidity and Capital Resources

Sources of Liquidity

The Company has historically been financed by debt from its stockholders and unrelated third parties. In addition, the Company has also been financed by the sale of equity interests. We had working capital deficit of $763,090$788,065 as of March 31,June 30, 2016. We believe that as a result of a commitment for financing from a stockholderour July 2016 Public Offering and our working capital as of March 31,June 30, 2016 that our cash resources will be sufficient to fund our net cash requirements through MayAugust 14, 2017.

The following is an overview of our borrowings as of March 31,June 30, 2016:

Below is a summary of our financing activities during the fiscal yearsix months ended December 31, 2015 and the quarter ended March 31,June 30, 2016. In order to execute our long-term growth strategy, which could include 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.

2016 Financing Activity

Commencing on November 24, 2015 and ending on March 14, 2016, we conducted a private placement of up to $3,000,000 of units (the “November Offering”) on a “best efforts” basis through a placement agent (the “Placement Agent”). From January 1, 2016 to March 14, 2016, we raised gross proceeds of $686,900, through the sale of 171,725 units at $4.00 per unit, as part of the November Offering.unit. In a separate private offering, we also raised gross proceeds of $235,000, through the sale of 58,750 units at $4.00 per units, during March 2016 (the “March Sales”). Each unit issued in the November Offering and in the March Sales consists of one share of common stock and one warrant to purchase one share of common stock. Included in the proceeds for the March Sales were subscriptions receivable of $120,000, which were collected during April 2016.

In March 2016, Brentwood approved an increase of $500,000 in the Available Amount under the Credit Agreement and approved advances in the same amount. Advances of $250,000 have been received by the Company, and an additional $250,000 will bewas received during May 2016. As of March 31,June 30, 2016, the principal amount of loans outstanding, including capitalized interest and fees (both of which are excluded when determining whether the Available Amount has been reached), were $1,377,930.$1,669,376. The terms of the Credit Agreement are described more fully below in “2015 Borrowing Activity.”

On April 8,July 28 and 29, 2016, we filed a registration statement on Form S-1 withsold 1,270,156 Shares in the SEC to raise additional capital.Offering. The sale of the Shares generated gross proceeds of $6,985,858 and net proceeds of $6,084,831 after deducting commissions and other offering expenses. On August 4, 2016, the Offering was terminated. No assurance can be given thatfurther sales of shares were made in the Proposed Offering will be consummated, or if consummated, will raise the maximum amount contemplated thereunder. Offering.

In connection with the Proposedclosing of the Offering, pursuant to an amendmentwe completed the Recapitalization with Brentwood. Pursuant to the Credit Agreement signed in April 2016, Brentwood has agreed to convertRecapitalization, all of the outstanding principal and interest under the BrentwoodLender Note was converted into 421,972 shares of our common stock (assuming all approved advances are completed and there are no further advances by Brentwood) at the closing of the offering. In addition, Brentwood will exchange the Brentwood Warrant for 486,111 shares of our common stock at such time. The Credit Facility will remain outstanding, except that the Facility Amount will be reduced to $3,500,000. The Recapitalization will occur only if the gross proceeds from the Proposed Offering are at least $5 million.stock.

2015 Borrowing Activity

On November 23, 2015, we entered into the Credit Agreement with LIBB, as the borrower, and Brentwood, as the lender.Agreement. The Credit Agreement provides for a revolving Credit Facility. The Available Amount under the Credit Facility may be increased from time to time, in increments of $500,000, up to a maximum Facility Amount of $5,000,000,$3,500,000, and we may obtain further advances, subject to the approval of Brentwood. The loans under the Credit Agreement are evidenced by the BrentwoodLender Note. The proceeds of the Credit Facility are to be used for the purposes disclosed in writing to Brentwood in connection with each advance. The lenderBrentwood had approved an Available Amount of $1,000,000 and had made advances to us in the same amount as of December 31, 2015. As of December 31, 2015, the outstanding balance of the loans under the Credit Facility, including capitalized interest and fees as described below (both of which are excluded when determining whether the Available Amount has been reached), was $1,091,571.

The Credit Facility bears interest at rate equal to the prime rate plus 7.5% (11% at March 31,June 30, 2016), compounded quarterly, and matures on November 23, 2018. The outstanding principal and interest under the Credit Facility are payable in cash on the maturity date. We also paid Brentwood a one-time facility fee equal to 1.75% of the Facility Amount, which was capitalized and added to the principal amount of the loan, and will pay Brentwood $30,000 for its expenses at the maturity date. The Credit Facility is secured by a first priority security interest in all of our property, including the membership interests in LIBB held by us. We also have guaranteed the repayment of LIBB’s obligations under the Credit Facility. In addition, LIBB’s obligations are guaranteed by Philip Thomas, our Chief Executive Officer, in certain limited circumstances, up to a maximum of $200,000.

Brentwood may accelerate the amounts due under the Credit Facility upon the occurrence of certain events of default, including a failure to make a payment under the credit facility when due, a violation of the covenants contained in the Credit Agreement and related documents, a filing of a bankruptcy petition or a similar event with respect to us or the occurrence of an event of default under other material indebtedness of ours. The Company and LIBB also made certain customary representations and warranties and covenants, including negative covenants with respect to the incurrence of indebtedness.

The loans under the Credit Agreement are evidenced by the Brentwood Note. Brentwood may elect to convert the outstanding principal and interest under the BrentwoodLender Note into shares of our common stock at a conversion price of $4.00 per share. The conversion price and the shares of common stock or other property issuable upon conversion of the principal and interest are subject to adjustment in the event of any stock split, stock combination, stock dividend or reclassification of our common stock, or in the event of a fundamental transaction.

In addition, in connection with the establishment of the Credit Facility, we issued the BrentwoodLender Warrant to Brentwood. The BrentwoodLender Warrant entitlesentitled the holder to purchase 1,111,111 shares of common stock at an exercise price of $4.50 and includes a cashless exercise provision. The exercise price and numberUpon the closing of the Offering, the Lender Warrant was exchanged for 486,111 shares of our common stock or property issuable on exercise of the Brentwood Warrant are subject to adjustment in the event of any stock split, stock combination, stock dividend or reclassification of the common stock, or in the event of a fundamental transaction.stock.

Brentwood will have certain “piggyback” registration rights, on customary terms, with respect to the shares of our common stock issued or issuable upon conversion of the BrentwoodLender Note and upon exerciseexchange of the Brentwood Warrant.

Brentwood has agreed to convert all of the outstanding principal and interest under the Brentwood Note into 421,972 shares of our common stock (assuming all approved advances are completed and there are no further advances by Brentwood) at the closing of the offering. In addition, Brentwood will exchange the Brentwood Warrant for 486,111 shares of our common stock at such time. The Credit Facility will remain outstanding, except that the Facility Amount will be reduced to $3,500,000. The Recapitalization will occur only if the gross proceeds from this offering are at least $5 million.

On November 23, 2015, the Company entered into a reimbursement agreement with Magnum Vending Corp., or “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 certain 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 the inception of the agreement 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 the vending machines to the Company. As of December 31, 2015, the total principal amount of the payments underlying the agreement was $117,917 and we had made principal and interest payments of $6,463 under the agreement.

On April 28, 2015, LIBB received $150,000 as proceeds from a loan from Bass Properties, LLC, or “Bass Properties,” which was at the time a stockholder of Cullen and member of LIBB. On May 4, 2015, LIBB received $400,000 as proceeds from a loan with Ivory Castle Limited, or “Ivory Castle,” which was at the time a member of LIBB. These notes bore interest at 6% per annum and were to mature on July 31, 2016. On June 30, 2015, these loans, together with accrued interest, a total of $555,910 were converted into 138,979 shares of the Company’s common stock.

On March 26, 2015, LIBB received $250,000 as proceeds from an additional loan from Cullen, bearing interest at 6% per annum with principal and interest due and payable on March 15, 2016. This loan was eliminated when consolidating the financial statements.

2015 Private Placements

On June 30, 2015, we received net proceeds of $468,468 through the issuance of 117,636 shares of common stock at an average price of approximately $4.00 per share.

On July 8, 2015, we received proceeds of $100,000 through the issuance of 25,000 shares of common stock at a price of $4.00 per share.

Commencing on August 10, 2015 and ending on October 30, 2015, we conducted a private placement of up to $3,000,000 of units (the “August Offering”), at a price of $4.00 per unit, through a placement agent. During the private placement, we sold an aggregate of 155,750 units for total gross proceeds of $623,000. The units consisted of one share of common stock (or an aggregate of 155,750 shares) and one warrant (or an aggregate of 155,750 warrants). Each warrant entitles the holder to purchase one share of common stock at an exercise price of $6.00 per share, expiring on September 17, 2018.

On November 24, 2015, we commenced the November Offering of up to $3,000,000 of units, at a price of $4.00 per unit, through a placement agent. As of December 31, 2015, we had sold an aggregate of 18,250 units for total gross proceeds of $73,000 in the private placement. The units consisted of one share of common stock (for an aggregate of 18,250 shares) and one warrant (for an aggregate of 18,250 warrants). Each warrant entitles the holder to purchase one share of common stock at an exercise price of $6.00 per share, expiring on November 30, 2018. We made additional sales in the November Offering after December 31, 2015, as described above under “2016 Financing Activity”.

Net proceeds after all direct costs related to the August Offering and the November Offering, including the value of warrants issued to the placement agent in the offerings, were $540,946 for the year ended December 31, 2015.

2015 Business Combination

On May 27, 2015, we completed the business combination contemplated by the Agreement and Plan of Reorganization, dated as of December 31, 2014, as amended, by and among us, Cullen, Cullen Merger Sub, Inc., LIIT Acquisition Sub, LLC, LIBB, and Phil Thomas and Thomas Panza. Prior to the closing of the business combination, we were a wholly-owned subsidiary of Cullen formed solely for the purpose of consummating the business combination, LIBB was a private operating company and Cullen was a public company seeking alternative strategic opportunities in all industries and regions in an effort to maximize stockholder value. Upon the closing of the business combination, we became the new public company and Cullen and LIBB became wholly-owned subsidiaries of ours. As a result of the consummation of the business combination, we gained access to the cash held by Cullen of $120,841. Under the agreement, upon consummation of the business combination, the holders of the LIBB membership interests received 2,633,334 shares of our common stock, subject to adjustment based on LIBB’s and Cullen’s net working capital at the closing. On July 16, 2015, the payment of the net working capital adjustment under the agreement was waived by the parties.

Cash flows

Net cash used in operating activities

Net cash used in operating activities was $768,912$1,515,407 for the threesix months ended March 31,June 30, 2016 as compared to net cash used in operating activities of $502,745$1,446,301 for the threesix months ended March 31,June 30, 2015. Cash used in operating activities for the threesix months ended March 31,June 30, 2016 was primarily the result of the net loss of $1,417,070$3,499,236 offset by non-cash charges of $477,689.$1,104,885. Cash used in operating activities for the threesix months ended March 31,June 30, 2015 was $502,745. This was primarily the result of the net loss of $1,062,152. In addition to the effect of our net losses, of $378,666 and increases in our inventory of $275,213.and accounts receivable, which were partially offset by increases in our accounts payable and accrued expenses resulted in further cash flows used in operating activities.

Net cash used in investing activities

Net cash used in investing activities was $0$12,251 and $5,850$29,560 for the threesix months ended March 31,June 30, 2016 and 2015, respectively.

Net cash provided by financing activities

Net cash provided by financing activities was $924,574$1,347,132 for the threesix months ended March 31,June 30, 2016 as compared to net cash provided by financing activities of $245,657$1,380,508 for the threesix months ended March 31,June 30, 2015. Cash flows from financing activities were primarily the result of $250,000$500,000 in proceeds under the Credit Agreement with Brentwood and $741,790$861,790 from the sale of common stock and warrants, net of costs. These proceeds were offset by payments of deferred offering costs of $53,383,$43,383, repayments of automobile loans of $4,680,$9,445, and repayments of equipment loans of $9,153.$18,080. During the threesix months ended March 31,June 30, 2015, LIBB received $250,000 in loans from Cullenand prior to the Merger betweenBusiness Combination, we received additional proceeds of $250,000 from a loan from Cullen. Upon the consummation of the Business Combination, we received $120,841 in cash from Cullen. In addition, LIBB Cullen,received loans totaling $550,000 from two of our stockholders, Bass Properties LLC and Long Island Iced Tea Corp. Proceeds from this loanIvory Castle Limited. These loans, together with accrued interest, were converted into 138,979 shares of Company common stock. In addition, the Company received net proceeds of $468,469 through the issuance of 117,636 shares of common stock. These proceeds were offset by paymentsrepayments of the Company’s automobile loans of $4,363.$8,802.

Off-balance Sheet Arrangements

We do not have any off-balance sheet financing arrangements.

Contractual Obligations

During the threesix months ended March 31,June 30, 2016, the following material changes occurred in the Company’s contractual obligations:

As a result of additional proceeds received under the Credit Facility and the capitalization of accrued interest, as of March 31,June 30, 2016, $1,377,930$1,669,376 was outstanding under Credit Agreement with Brentwood LIIT Corp.

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, Chief Financial Officer and our Chief Accounting 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 AccountingFinancial Officer (our principal financial officer and principal accounting officer)officer and Chief Accounting Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31,June 30, 2016. Based on this evaluation, our Chief Executive Officer, Chief Financial Officer and Chief Accounting 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,June 30, 2016 due to a material weakness in our internal control over financial reporting as described below.below

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 of financial reporting had the following material weakness:

The Company is evaluating this weakness to determine the appropriate remedy. 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

ThereOther than the hiring of the Company’s Chief Financial Officer on June 6, 2016, there have been no 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.

PART II.
II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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 actions:action:

ITEM 1A. RISK FACTORS

The following description of risk factors includes any material changes to, and supersedes the description of, risk factors associated with the Company’s business previously disclosed in Item 1A of Part I of our annual report on Form 10-K filed on March 22, 2015. An investment in our securities involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this Form 10-Q, before deciding to invest in our securities. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our securities could decline and you may lose all or part of your investment.Not applicable.

Risks Related to Our Business

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

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

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

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

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

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

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

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

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

Our products are currently produced by three established co-packing companies. A disruption in our production at, or our relationships with, our third party beverage co-packing facilities could have a material adverse effect on our business. In addition, a disruption could occur at any of our storage facilities or those of our suppliers, co-packers or distributors. The disruption could occur for many reasons, including fire, natural disasters, weather, manufacturing problems, disease, strikes, transportation interruption, government regulation or terrorism. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which could negatively affect our business and financial performance.

We rely, in part, on our third party beverage co-packing facilities to maintain the quality of our products. The failure or inability of this co-manufacturer to comply with the specifications and requirements of our products could result in product recall and could adversely affect our reputation.

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

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

From time to time in the normal course of our business operations, we may become subject to litigation that may result in liability or negatively affect our operating results. The cost to defend such litigation may be significant and may require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial condition and results of operations. See Item 3 of Part I of our Annual Report on Form 10-K filed on March 22, 2016 and Item 1 of Part II of this Form 10-Q.

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

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

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

Current global economic conditions may adversely affect our industry, business and result of operations.

Disruptions in the current global credit and financial markets in the past several years have included diminished liquidity and credit availability, a decline in consumer confidence, a decline in economic growth, an increased unemployment rate and uncertainty about economic stability. While certain of these negative trends have reversed in recent years, there can be no assurance that there will not be renewed deterioration in credit and financial markets and confidence in economic conditions. These economic uncertainties affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. Any adverse global economic conditions and tightening of credit in financial markets may lead consumers to postpone spending, which may cause our customers to cancel, decrease or delay their existing and future orders with us. In addition, financial difficulties experienced by our suppliers, manufacturers, distributors or customers could result in product delays, increased accounts receivable defaults and inventory challenges. We are unable to predict the likely duration and severity of disruptions in the credit and financial markets and adverse global economic conditions.

We depend on a small number of large retailers for a significant portion of our sales. Our sales growth is dependent upon maintaining our relationships with existing customers and the loss of any one such customer could materially adversely affect our business and financial performance.

Certain retailers that we service primarily through our distributors make up a significant percentage of our products’ retail volume, including volume sold by our bottlers and distributors. We also sell directly to certain retail accounts, including Costco, and to the distribution facilities of such retailers. For the three months ended March 31, 2016, two customers accounted for 16% and 12% of net sales, respectively. In addition, the Company collects vending proceeds based on contracts in certain school districts. Sales within one school district accounted for 13% of our net sales during the three months ended March 31, 2016. For the year ended December 31, 2014, our top three customers, Costco Wholesale, Windmill Distributing, and CFG Distributors LLC, accounted for 32%, 16% and 14% of net sales, respectively. During the year ended December 31, 2015, our top customer, Wakefern Food Corp., accounted for approximately 10% of our net sales and sales to Costco represented 6% of our net sales. Some retailers also offer their own private label products that compete with some of our brands. The loss of sales of any of our products in a major retailer could have a material adverse effect on our business and financial performance.

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

Consolidation has resulted in large, sophisticated retailers with increased buying power. They are in a better position to resist our price increases and demand lower prices. They also have leverage to require us to provide larger, more tailored promotional and product delivery programs. If we, and our bottlers and distributors, do not successfully provide appropriate marketing, product, packaging, pricing and service to these retailers, our product availability, sales and margins could suffer.

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

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

We have developed a gallon product line in which our gross margins are minimal, and therefore may not generate sufficient revenues or other benefits to justify its introduction. In addition, the gallon product line may divert sales from our higher margin 20 ounce product line, which would adversely affect our business.

In May 2015, we developed a gallon product line featuring five of our existing flavors. Our gross margins on this product line are minimal. Accordingly, this product line may not generate sufficient revenues or other benefits to justify its introduction. In addition, to the extent distributors choose to carry the gallon product line instead of our higher margin 20 ounce product line, it may negatively affect our operating results, specifically our gross margin. Although we believe the gallon size has a different function and manner of consumption, consumers may choose to purchase the gallon size instead of the 20 ounce size, because the gallon size offers a better per ounce value. This would result in an overall lower gross margin for our business.

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

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

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

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

Our substantial debt could adversely affect our liquidity and results of operations.

As of March 31, 2016, we had approximately $1,533,296 of total indebtedness (comprised primarily of our $1,377,930 of indebtedness under the Credit Agreement, which bears interest at the prime rate plus 7.5%). In addition, in May 2016, Brentwood will make an additional advance of $250,000 to us under the Credit Agreement. While our debt under the Credit Agreement will be converted in connection with the Recapitalization if the Proposed Offering is completed and generates gross proceeds to us of at least $5,000,000, and although we may pay interest that accrues on the loans under the Credit Agreement by capitalizing the interest and adding it to the principal balance of such loans, we may not be able to generate sufficient cash to service such debt as cash payments become due. If new debt is added to our current debt levels, the related risks for us could intensify.

Our substantial debt could have important consequences. In particular, it could:

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

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

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

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

We are subject to a variety of federal, state and local laws and regulations in the U.S., and other countries in which we do business. These laws and regulations apply to many aspects of our business including the manufacture, safety, labeling, transportation, advertising and sale of our products. Violations of these laws or regulations could damage our reputation and/or result in regulatory actions with substantial penalties. In addition, any significant change in such laws or regulations or their interpretation, or the introduction of higher standards or more stringent laws or regulations could result in increased compliance costs or capital expenditures. For example, changes in recycling and bottle deposit laws or special taxes on soft drinks or ingredients could increase our costs. Regulatory focus on the health, safety and marketing of food products is increasing. Certain state warning and labeling laws, such as California’s “Prop 65,” which requires warnings on any product with substances that the state lists as potentially causing cancer or birth defects, could become applicable to our products. Some local and regional governments and school boards have enacted, or have proposed to enact, regulations restricting the sale of certain types of soft drinks in schools. Any violations or changes of regulations could have a material adverse effect on our profitability, or disrupt the production or distribution of our products, and negatively affect our business and financial performance.

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

The ability of our business to grow and compete depends on the availability of adequate capital. We currently have negative cash flows from operations due in part to substantial marketing and promotional related expenses as well as our payroll expense. While we expect that the proceeds of this offering will be sufficient to meet our working capital needs for the next 12 months, we may require additional capital in the future to finance our growth strategy or for other purposes. In such event, we cannot assure you that we will be able to obtain equity or debt financing on acceptable terms or at all. As a result, we cannot assure you that adequate capital will be available to finance our current growth plans, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business.

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

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

While we currently produce only non-alcoholic beverages, we are exploring entry into the alcoholic beverage industry. To the extent that we expand our operations into new sectors of the beverage industry, our business operations may suffer from a lack of experience, significant costs of entry and the competitive conditions in the market, among other factors, which could materially and adversely affect our business, financial condition, results of operations and cash flows.

We are exploring entry into the alcoholic beverage industry. As we principally have been engaged in the production of NARTD teas, we have limited experience with developing, producing, marketing and distributing alcoholic beverages. Additionally, we will be exposed to significant operating costs associated with developing new products and entering a new sector of the beverage industry and will face new regulatory burdens, which could have an adverse impact on our business as well as place us at a disadvantage relative to more established alcoholic beverage market participants. Furthermore, the alcoholic beverage industry is highly competitive. We will compete with multinational corporations with significant financial resources. These competitors can use their resources and scale to rapidly respond to competitive pressures and changes in consumer preferences by introducing new products, reducing prices or increasing promotional activities. In addition:

As a result of the foregoing factors, we may be unsuccessful in expanding our business to include alcoholic beverages. Furthermore, attempting such an expansion will require a substantial investment of resources and management time, which could materially adversely affect our more established non-alcoholic beverage business as well. Accordingly, we can offer no assurance that if we expand our business beyond NARTD teas, we will be able to effectively develop, produce, market and distribute such beverages. Such failure could materially and adversely affect our business, financial condition, results of operations and cash flows.

Risks Related to Ownership of Our Securities

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

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

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

Our common stock is traded on the OTCQB, which is an over-the-counter market. The over-the-counter markets are inter-dealer markets that may provide significantly less liquidity than national securities exchanges. As a result, an active public market for our common stock may not develop or be sustained, which could affect your ability to sell, or depress the market price of, our common stock. We have applied to have our common stock listed on the Nasdaq Capital Market in connection with the Proposed Offering, but we cannot assure you that the Proposed Offering will be completed or that our application will be approved or that, if completed and approved, our common stock will continue to trade on Nasdaq following the Proposed Offering. Even if it is approved for trading and continues to trade on the Nasdaq Capital Market, we are unable to predict whether an active trading market for our common stock will develop or will be sustained.

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

The price and volume of our common stock may be volatile and subject to fluctuations. Some of the factors that could cause fluctuations in the stock price or trading volume of our common stock include:

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

Our outstanding convertible debt, warrants and options and the registration rights granted to certain of our stockholders will increase the number of shares outstanding and may have an adverse effect on the market price of our common stock.

We presently have outstanding (i) employee stock options to purchase 194,667 shares of common stock at an exercise price of $3.75 per share held by certain of our executive officers, (ii) warrants to purchase up to 404,475 shares of common stock at an exercise price of $6.00 per share that were issued in private placement offerings conducted by us, (iii) warrants to purchase up to 34,573 shares of common stock at an exercise price of $4.50 per share issued to the placement agent for certain of the private placement offerings, (iv) the Brentwood Warrant to purchase 1,111,111 shares of our common stock at $4.50 per share, and (v) the Brentwood Note which is convertible into shares of our common stock at $4.00 per share (344,483 shares based on the current outstanding amount of principal and interest of $1,377,930, which excludes the $250,000 of advances approved but not yet made). If the Proposed Offering is completed and generates gross proceeds to us of at least $5,000,000, the Brentwood Note and Brentwood Warrant will be exchanged for 908,083 shares of common stock. In addition, we have granted certain demand and piggyback registration rights (i) to the investors in certain of our private placements with respect to the 404,475 shares of common stock and the shares underlying the 404,475 warrants sold to them in such offerings, (ii) to the former LIBB members with respect to the 2,633,334 shares of common stock issued to them in the business combination between us, Cullen and LIBB in May 2015, (iii) to Breentwood with respect to the 908,083 shares of common stock issuable in the Recapitalization, or with respect to any shares of common stock issuable upon conversion of the Brentwood Note and exercise of the Brentwood Warrant, if not exchanged in the Recapitalization, and (iv) to the founders of Cullen’s predecessor with respect to the shares that were originally issued to them prior to such predecessor’s initial public offering. If and to the extent these warrants and options are exercised, or these registration rights are exercised, you may experience dilution to your holdings.

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

Our amended and restated certificate of incorporation allows our board of directors to issue 35,000,000 shares of common stock and 1,000,000 shares of preferred stock and to set the terms of such preferred stock. The issuance of additional common stock may dilute the economic and voting rights of our existing stockholders. In addition, the terms of such preferred stock may materially adversely impact the dividend and liquidation rights of holders of the common stock.

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

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

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

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

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

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

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

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

Obligations associated with being a public company require significant company resources and management attention, and we will incur increased costs as a result of being a public company.

We became subject to the reporting requirements of the Exchange Act, and the other rules and regulations of the SEC, including Sarbanes-Oxley, upon consummation of the business combination between us, LIBB and Cullen in May 2015. These requirements and rules may place a strain on our systems and resources and those of our subsidiaries, including LIBB, which was not previously subject to such regulation. For example, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition and Sarbanes-Oxley requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. These reporting and other obligations will place significant demands on our management, administrative, operational and accounting resources, will make certain activities more time-consuming and will cause us to incur significant legal, accounting and other expenses that we had not previously incurred. Furthermore, the expenses incurred by public companies, generally, for reporting and corporate governance purposes have been increasing, which may further strain our resources. We may need to upgrade our systems or create new systems, implement additional financial and management controls, reporting systems and procedures, expand or outsource our internal audit function, and hire additional accounting and finance staff. If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with the financial reporting requirements and other rules that apply to reporting companies could be impaired. In addition, our limited management resources may exacerbate the difficulties in complying with these reporting and other requirements while focusing on executing our business strategy. Our incremental general and administrative expenses as a publicly traded corporation will include costs associated with reports to stockholders, tax returns, investor relations, registrar and transfer agent’s fees, incremental director and officer liability insurance costs and director compensation. During 2015, we estimate that we incurred approximately $283,000 in additional costs in connection with being a public company, excluding compensation to directors and additional employees and all stock-based compensation. We cannot predict or estimate the amount of the additional costs we may incur in future years, the timing of any increases in such costs or the degree of impact that our management’s attention to these matters will have on our business.

We will be required to comply with certain provisions of Section 404 of Sarbanes-Oxley as early as December 31, 2016, although as an “emerging growth company” we will be exempt from certain of its requirements for so long as we remain as such. For example, Section 404 of Sarbanes-Oxley requires that we and our independent auditors report annually on the effectiveness of our internal control over financial reporting; however, as an “emerging growth company” we may take advantage of an exemption from the auditor attestation requirement. Once we are no longer an “emerging growth company” or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent auditors on the effectiveness of our internal control over financial reporting, unless at such time we are a “non-accelerated filer.” We currently qualify as a “non-accelerated filer” and will generally continue to qualify as such for each fiscal year thereafter where our public float remains below $75 million as of the last day of the second fiscal quarter of the prior fiscal year. Management, however, is not exempt from Section 404 of Sarbanes-Oxley, and will be required to, among other things, maintain and periodically evaluate our internal control over financial reporting and disclosure controls and procedures. In particular, we will need to perform system and process evaluation and testing of our internal control over financial reporting to allow us to report on the effectiveness of our internal control over financial reporting, as required. Any failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, prospects, liquidity, results of operations and financial condition. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to fines, sanctions and other regulatory action.

As an “emerging growth company,” we also intend to continue to take advantage of certain other exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, as a “smaller reporting company,” we are permitted to take advantage of reduced disclosure requirements, some of which are the same as the exemptions available to an “emerging growth company.” In general, we will remain a “smaller reporting company” for each fiscal year where our public float remains below $75 million as of the last day of the second fiscal quarter of the prior fiscal year. We intend to take advantage of these exemptions and reduced reporting requirements until we are no longer an “emerging growth company” and/or a “smaller reporting company,” at which time, we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance with these additional requirements, including Section 404 of the Sarbanes-Oxley.

We may become subject to penny stock regulations and restrictions and you may have difficulty selling shares of the common stock.

The common stock may become subject to the provisions of Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the “penny stock rule.” Section 15(g) sets forth certain requirements for transactions in penny stock, and Rule 15g-9(d) incorporates the definition of “penny stock” that is found in Rule 3a51-1 of the Exchange Act. The SEC generally defines a penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. We may become subject to the SEC’s penny stock rules if the market price of our common stock declines and we are not listed on a national securities exchange.

Since our common stock may in the future be deemed to be penny stock, trading in the shares of the common stock may become subject to additional sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors. An individual qualifies as an accredited investor if he or she, together with his or her spouse, has assets in excess of $1,000,000 (excluding the value of such person’s primary residence) or annual income exceeding $200,000 or $300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such security and must have the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document prepared by the SEC relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in an account and information to the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealer to trade and/or maintain a market in our common stock and may affect the ability of our stockholders to sell their shares of common stock.

If the market price of the common stock declines, there can be no assurance that our shares of common stock will qualify for an exemption from the penny stock rule. In any event, even if the common stock was exempt from the penny stock rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock if the SEC finds that such a restriction would be in the public interest.