UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2016March 31, 2017

For the transition period from _____________ to _____________

Commission File Number001-37808

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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [X]

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

Yes [  ] No [X]

As of November 10, 2016, 7,308,756May 12, 2017, 8,383,066 shares of common stock, par value $.0001 per share, were issued and outstanding.

LONG ISLAND ICED TEA CORP.

FORM 10-Q FOR THE THREE AND NINE MONTHSQUARTER ENDED SEPTEMBER 30, 2016MARCH 31, 2017

TABLE OF CONTENTS

PART I1 - FINANCIAL INFORMATION

Item 1. Financial Statements.Statements

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

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

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF OPERATIONSCHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)FOR THE THREE MONTHS ENDED MARCH 31, 2017

(unaudited)

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

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

(UNAUDITED)

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(unaudited)

The accompanying notes are an integral part of these 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-Corporationcorporation (“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 LLCLIBB 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 mergerMergers which waswere consummated on May 27, 2015, LIIT consisted of its wholly owned subsidiaries, LIBB (its operating subsidiary) and Cullen and Cullen’s wholly owned subsidiaries (collectively the “Company”).

Under the merger agreement, upon consummation of the Mergers, the former holders of the LIBB membership interests (the “LIBB members”) received 2,633,334 shares of common stock of LIIT (or approximately 63%).

For accounting purposes, the Mergers were treated as an acquisition of Cullen by LIBB and as a recapitalization of LIBB, as the former LIBB members holdheld a large percentpercentage of the LIIT’s shares and will exerciseexercised significant influence over the operating and financial policies of the consolidated entity and the CompanyCullen was a public shell company at the time of the transaction. Pursuant to Accounting Standards Codification (“ASC”) 805-10-55-11 through 55-15, the merger or acquisition of a private operating company into a non-operating public shell with nominal assets is considered a capital transaction in substance rather than a business combination. As a result, the condensed consolidated balance sheets, statements of operations, and statements of cash flows of LIBB have been retroactively updated to reflect the recapitalization.

Additionally, the historical condensed consolidated financial statements of LIBB are now reflected as those of the Company.

Overview

The Company is a holding company operating through its wholly-owned subsidiary, LIBB. The Company is engaged in the production and distribution of premium Non-Alcoholic ready-to-drink (“NARTD”) iced tea in the beverage industry. The Company is currently organized around ourunder its flagship brand, Long Island Iced Tea, a premium NARTD tea made from a proprietary recipe and with quality components. The Company’s mission is to provide consumers with premium iced tea offered at an affordable price.

The Company aspires to be a market leader in the development of iced tea beverages that are convenient and appealing to consumers. There are two major target markets for Long Island Iced Tea: consumers“consumers on the gogo” and health“health conscious consumers. Consumers” “Consumers on the gogo” 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“Health conscious consumersconsumers” are individuals who are becoming more interested and better educated on what is included in their diets, causing them to shift away from the less healthy options, such as carbonated soft drinks, towards alternative beverages such as iced tea.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

During the second quarter of 2016, theNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BUSINESS ORGANIZATION, LIQUIDITY AND MANAGEMENT’S PLANS (CONTINUED)

Overview, continued

The Company began selling aloe juicesproduces a 100% brewed tea, using black tea leaves, purified water and commenced sellingnatural cane sugar or sucralose. Flavors change from time to time, and have included lemon, peach, raspberry, guava, mango, diet lemon, diet peach, sweet tea, green tea and honey, sweet tea and half tea and half lemonade. The Company also offers lower calorie iced tea in twelve (12) ounce bottles. The lower calorie flavor options include mango, raspberry and peach. The Company also sells its iced tea in gallon bottles with flavor options including lemon, peach, green tea and honey, sweet tea and mango. The company also sells a private label version of its iced tea product. Forproducts. In addition, in order to service certain vending contracts, the Company sells snacks and other beverage products on a limited basis.

The Company distributes an aloe vera derived juice beverage (“ALO Juice”). During the three and nine months ended September 30, 2016,March 31, 2017, the Company’s aloe juiceALO Juice product accounted for approximately 35% and 23%, respectively,36% of the Company’sits condensed consolidated net sales.

On March 14, 2017, the Company announced that it is expanding its brand to include lemonade. Lemonade will be offered in nine flavors and will be offered at retail in both single and 12-packs of 18oz bottles.

The Company sells its products to regional retail chains and to a mix of independent mid-to-large range distributors who in turn sell to retail outlets, such as big chain supermarkets, mass merchants, convenience stores, restaurants and hotels, principally in the New York, New Jersey, Connecticut and Pennsylvania markets. During 2016, the Company has also begun expansion into other geographic markets, such aswith expanding distribution in Florida, Virginia, Massachusetts, New Hampshire, Nevada, Rhode Island and parts of the Midwest. TheAs of March 31, 2017, the Company’s products are currently available in 1227 states that have a cumulative population of 100 million people. The Company has also begun to sell its products globallyand in regions such as South KoreaCanada and multiple Caribbean nations.Latin America.

Asset Purchase Agreement

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BUSINESS ORGANIZATION, LIQUIDITY AND MANAGEMENT’S PLANS, continuedOn December 8, 2016, the Company entered into an asset purchase agreement with The Wilnah International, LLC (“Wilnah”). Pursuant to the agreement, the Company will acquire the intellectual property (“IP”) (trade names, formulas, recipes) for ALO Juice. Upon the closing, the Company will issue to Wilnah 5,000 shares of its common stock. The closing of the transaction is expected to occur in the second quarter of 2017. Separately, the Company has entered into an employment agreement with Julio X. Ponce, majority interest member of Wilnah, to expand the Company’s sales of ALO Juice products within the Southeast U.S. and Latin American regions.

Liquidity and Management’s Plan

The Company has been focused on the development of its brand and its infrastructure, as well as in the establishment of a network of distributors and qualified direct accounts. From inception, the Company has financed its operations through the issuance of debt and equity, and through utilizing trade credit with its vendors.

As of September 30, 2016,March 31, 2017, the Company hashad cash of $359,613$118,474 and short-termshort term investments of $2,507,302.$1,602,655. As of March 31, 2017, the Company had working capital of $3,197,482. The Company incurred net losses of $4,891,028$3,454,522 and $8,390,264$1,417,070 for the three and nine months ended September 30,March 31, 2017 and 2016, respectively. At September 30, 2016,As of March 31, 2017, the Company’s stockholders’ equity was $4,303,459. As of September 30, 2016, the Company had working capital of $3,116,734.

During the nine months ended September 30, 2016, the Company raised net proceeds of $6,729,007 through the sale of 1,500,631 shares of common stock and 230,475 warrants to purchase common stock.

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 18.2% as of September 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 a 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 $5,867,217 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, the Lender converted all of the outstanding principal and interest ($1,669,376) under the Credit Agreement into 421,972 shares of common stock and exchanged its warrant for 486,111 shares of common stock. As of September 30, 2016, the balance under the Credit Agreement was $0.

In connection with the consummation of the Offering, on July 29, 2016, the selling agents were issued warrants to purchase an aggregate of 31,522 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.

On October 12, 2016, the Company filed a “shelf” registration statement on Form S-3/A Amendment No. 1, under which the Company may from time to time, sell any combination of debt or equity securities up to an aggregate initial offering price not to exceed $50,000,000. (See Note 10 – Subsequent Events)$4,132,689.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BUSINESS ORGANIZATION, LIQUIDITY AND MANAGEMENT’S PLANS continued(CONTINUED)

Liquidity and Management’s Plan, continued

Pursuant to a Credit and Security Agreement (the “Credit Agreement”), the Company has a revolving credit facility in an amount up to $3,500,000, subject to approval by the lender (See Note 5).

On January 27, 2017, the Company sold 376,340 shares of the Company’s common stock in a public offering at an average price of $4.02 per share. Of the shares sold, 300,000 were sold to the public at an offering price of $4.00 while the remaining 76,340 shares were sold to officers and directors of the Company at a price of $4.10 per share. The sale of common stock generated gross proceeds of $1,513,000 and net proceeds of $1,429,740 after deducting commissions and other offering expenses.

The Company believes that as a result of the commitment for financing from certain members of management and a stockholder and its working capital as of September 30, 2016,March 31, 2017, its cash resources will be sufficient to fund the Company’s net cash requirements for the next twelve months from the date these condensed consolidated financial statements are issued.through May 15, 2018. However, in order to execute the Company’s long-term growth strategy, the Company may need to raise additional funds through private equity offerings, debt financings, or other means. On May 12, 2017, the Company received a commitment letter from certain members of management and a stockholder committing to fund any cash deficit required to sustain the operations of the Company through May 15, 2018. There are no assurances that the Company will be able to raise such funds on terms that would be acceptable to the Company.

In consideration for a prior commitment for financing the Company through March 31, 2018 from a stockholder, on March 29, 2017, the Company’s Board of Directors issued to this stockholder a warrant to purchase 165,000 shares of the Company’s common stock at an exercise price of $4.18 per share. This warrant has a term of one year and was fully vested upon issuance. The option had a grant date fair value of $172,526, which was fully charged to general and administrative expense during the three months ended March 31, 2017. The fair value of the warrant was determined utilizing the Black-Scholes option pricing model, based upon a common stock price of $4.00 per share, dividend yield of 0%, expected volatility of 70%, risk free interest rate of 1.00%, and an expected life in years of 1.00.

In consideration for the May 12, 2017 commitment for financing the Company through May 15, 2018 from a stockholder, on May 12, 2017, the Company’s Board of Directors issued to this stockholder a warrant to purchase 20,000 shares of the Company’s common stock at an exercise price of $4.90 per share. This warrant has a term of one year and was fully vested upon issuance. 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2016March 31, 2017 are not necessarily indicative of the resultresults that may be expected for the year ending December 31, 2016.2017. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 20152016 and related notes thereto included in the Company’s Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on March 22, 2016.30, 2017.

Reclassification

Certain amounts in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no effect on the previously reported net loss.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Principles of Consolidation

The 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.

eliminated in the accompanying condensed consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and also affect the amounts of revenues and expenses reported for each period. Actual results could differ from those which result from using such estimates. Management utilizes various other estimates, including but not limited to, assessing the collectability of accounts receivable, accrual of rebates to customers, the valuation of securities, the valuation of inventory, determining the estimated lives of long-lived assets, determining the potential impairment of intangibles, the fair value of warrants issued, the fair value of stock options, the fair value of a beneficial conversion feature 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.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) For sales where certain revenue recognition criteria have not been met at the date of delivery, the Company defers recognition of such revenue and accounts receivable until such recognition criteria are met.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Customer Marketing Programs and Sales Incentives continued

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 nine months ended September 30, 2016, the Company issued 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. Included in the costs of these programs were costs associated with the fair value of shares issued, which totaled $0 and $26,221 for During the three months September 30, 2016 and 2015, respectively and $45,165 and $54,919 forended March 31, 2017, an adjustment to these allowances resulted in an increase of $9,144 in net sales. During the ninethree months ended September 30,March 31, 2016, and 2015, respectively.

Additionally, the Company may be required to occasionally pay fees to its customers (“Placement Fees”)these allowances resulted 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 in net sales 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 nine months ended September 30, 2016, the Company recorded $0 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 nine months ended September 30, 2015.$45,165.

Shipping and Handling Costs

Shipping and handling costs incurred to move finished goods from the Company’s sales distribution centers to customer locations are included in selling and marketing expenses onwithin the condensed consolidated statements of operations and totaled $117,998$25,290 and $27,563$40,152, for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively and $319,668 and $71,813 for the nine months ended September 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)

Advertising

The Company expenses advertising costs as incurred. Advertising expensecosts are included in selling and marketing expenses within the condensed consolidated statements of operations and totaled $84,433$51,642 and $29,130, respectively,$9,631 for the three months ended September 30,March 31, 2017 and 2016, and 2015 and $114,980 and $155,623, respectively, for the nine months ended September 30, 2016 and 2015.

respectively.

Research and Development

The Company expenses the costs of research and development as incurred. For the three and nine months ended September 30, 2016, research and development expenseCosts related to new product initiatives incurred during the three months ended March 31, 2017 and 2016 were $0$176,862 and $400, respectively, and were included in selling and marketing expenses. Other research and development costs were $829 and $46,667 respectively. Thesefor the three months ended March 31, 2017 and 2016, respectively and were included in general and administrative expenses. The expenses incurred during the three months ended March 31, 2016 were incurred pursuant to a product development agreement which will require the Company to pay $40,000 in cash and $40,000 in common stock upon the completion of the arrangement. There were no research and development expenses incurred during the three and nine months ended September 30, 2015. Research and development expenses are included within general and administrative expenses within the condensed consolidated statement of operations. As of September 30, 2016,March 31, 2017, $50,000 was included in accrued expenses in the condensed consolidated balance sheet related to thisthe 2016 arrangement.

Operating LeasesShort-term Investment

The Company records rent relatedaccounts for securities in accordance with accounting standards for investments in debt and equity securities. Accounting standards require investments in debt and equity securities to its operating leases on a straight line basis over the lease term.

Cash and Cash Equivalentsbe classified as either “held to maturity”, “trading”, or “available-for-sale.”

The Company considers all highly liquid instrumentsholds investments in marketable securities, consisting of U.S. government securities and mutual funds. The Company’s available-for-sale securities are carried at estimated fair value with an original maturityany unrealized gains and losses, net of taxes, included in accumulated other comprehensive (loss) income in stockholders’ equity when applicable. During the three months or lessended March 31, 2017 and 2016, the unrealized gain was $12,197 and $0, respectively. Unrealized losses are charged against interest and other income/(expense), net, when acquireda decline in fair value is determined to be cash equivalents.other-than-temporary. The Company has not recorded any such impairment charge in the periods presented. The Company determines realized gains or losses on sale of marketable securities on a specific identification method, and records such gains or losses as interest and other income/(expense), net.

The following table sets forth the available-for-sale securities:

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

Restricted Cash(CONTINUED)

Pursuant to the terms of the Credit Agreement with Lender, the Company was required to utilize $150,000 of certain $1,000,000 in 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 use in the development of an alcohol business. On March 17, 2016, LIBB entered into an agreement with Lender whereby such restriction was lifted.Short-term Investment, (continued)

Short-term investments included the following securities with gross unrealized gains/losses included in other comprehensive loss:

The following table classifies the US Government Securities by maturity:

Accounts Receivable

The Company sells products to distributors and in certain cases directly to retailers, and extends credit, generally without requiring collateral, based on its evaluation of the customer’s financial condition. While the Company has a concentration of credit risk in the retail sector, it believes this risk is mitigated due to the diverse nature of the customers it serves, including, but not limited to, its type, geographic location, size, and beverage channel. Potential losses on the Company’s receivables are dependent on each individual customer’s financial condition and sales adjustments granted after the balance sheet date. The Company carries its trade accounts receivable at net realizable value. Typically, accountsAccounts receivable have terms of netranging from 30 to 75 days and do not bear interest. The Company monitors its exposure to losses on receivables and maintains allowances for potential losses or adjustments. The Company determines these allowances by (1) evaluating the aging of its receivables; (2) analyzing its history of sales adjustments; and (3) reviewing its high-risk customers. Past due receivable balances are written off when the Company’s efforts have been unsuccessful in collecting the amount due. Accounts receivable are stated at the amounts management expects to collect.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts Receivable, continued

Accounts receivable, net, is as follows:

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions, short-term investments and accounts receivable. At times, the Company’s cash in banks is in excess of the Federal Deposit Insurance Corporation (“FDIC”)FDIC insurance limit. The Company has not experienced any loss as a result of these cash deposits. These cash balances are maintained with one bank.two banks. As of September 30, 2016,March 31, 2017, the Company was exposed to concentrations of credit risk through short-term investments. As of September 30, 2016, three customersinvestments held with two financial institutions. One customer accounted for 25%, 11%47% and 11%46% of the Company’s trade receivables respectively. Asas of March 31, 2017 and December 31, 2015, two customers accounted for 14% and 30% of the Company’s trade receivables.2016, respectively. The Company does not generally require collateral or other security to support customer receivables.

On March 14, 2017, a distributor that represented 47% of the Company’s trade receivables as of March 31, 2017 issued to the Company a note in the amount of $467,444 due on June 12, 2017. Such note provides credit enhancement and bears interest commencing on the 45^th day from the date of execution based on the Wall Street Journal’s prime rate at (4% per annum at March 31, 2017) for a period of 45 days and then adjusted to 15% per annum, thereafter. The obligations of the distributor under the note are personally guaranteed by its former part owner, who, on January 1, 2017, became the Company’s employee.

The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required.

Inventories

Inventories

The Company’s inventory includes raw materials such as bottles, sweeteners, labels, flavors and packaging. Finished goods inventory consists primarily of bottled iced tea.tea and ALO Juice. As of March 31, 2017 and December 31, 2016, included in inventory was finished goods inventory with a cost of approximately $206,000 and $320,000, respectively, that was delivered to a distributor, and is held in inventory until certain revenue recognition criteria are met.

The Company values its inventories at the lower of cost or net realizable value,market, net of reserves. Cost is determined using the first-in, first-out (FIFO) method. As of September 30, 2016March 31, 2017 and December 31, 2015,2016, the Company recorded a reservereserves of $28,615$59,113 and $41,790,$45,078, respectively, to reduce the cost of certain products to estimated net realizable value. The following table summarizes inventories as of the dates presented:

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued(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 theCompany’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 September 30,March 31, 2017 and 2016, and 2015, depreciation expense was $39,420$41,369 and $27,043,$38,694, respectively. For the nine months ended September 30, 2016 and 2015, depreciation expense was $117,118 and $76,578, respectively. The Company disposed of one of its vehicles on July 18, 2016. In connection with the disposal, the Company recognized a loss of $515.

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 $3,741$1,250 and $7,494$2,500 as of September 30, 2016March 31, 2017 and December 31, 2015,2016, respectively. The estimated useful life of the capitalized costs of the Company’s website is 3 years and is depreciated on a straight line basis. As of September 30,March 31, 2017, the cost of the website development was $15,000 and the accumulated amortization was $13,750. As of December 31, 2016, the cost of the website development was $15,000 and the accumulated amortization was $11,259. As of December 31, 2015, the cost of the website development was $15,000 and the accumulated amortization was $7,506. Amortization expense was $1,251 and $1,251 for$12,500. For the three months ended March 31, 2017 and 2016, amortization expense was $1,250 and 2015, respectively and $3,753 and $3,753$1,251, respectively. Expected future amortization of website development costs is $1,250 for the nine months ended September 30, 2016 and 2015, respectively.December 31, 2017.

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 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(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—“Income Taxes”. No uncertain tax provisions have been identified. The Company accrues interest and penalties, if incurred, on unrecognized tax benefits as components of the income tax provision in the accompanying condensed consolidated statements of operations. Our primary tax jurisdictions are our federal, various state, and local taxes.

Generally, Federal, State and Local authorities may examine the Company’s tax returns for three years from the date of filing.

In accordance with ASC 740, the Company evaluates whether a valuation allowance should be established against the net deferred tax assets based upon the consideration of all available evidence and using a “more likely than not” standard. Significant weight is given to evidence that can be objectively verified. The determination to record a valuation allowance is based on the recent history of cumulative losses and current operating performance. In conducting the analysis, the Company utilizes an approach, which considers the current year loss, including an assessment of the degree to which any losses are driven by items that are unusual in nature and incurred to improve future profitability. In addition, the Company reviews changes in near-term market conditions and any other factors arising during the period, which may impact its future operating results.

EarningsLoss per share

Basic net earningsloss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon the exercise of stock options, warrants and warrants.the conversion. 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, warrants and other dilutive instruments in periods where the exerciseinclusion of such optionsinstruments would be antidilutive.antidilutive, as provided below:

Fair Value of Financial Instruments

Potentially dilutive securities outlined in

The carrying amounts of cash, short term investments, accounts receivable, accrued expenses, automobile and equipment loans and the table below have been excluded fromUBS Credit Line (See Note 4 below) approximate fair value due to the computationshort-term nature of diluted net loss per share becausethese instruments. In addition, for notes payable, the effect of their inclusion would have been anti-dilutive.

Company believes that interest rates approximate prevailing rates.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued(CONTINUED)

Fair ValuesValue of Financial Instruments, continued

The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses, notes payable and other current liabilities, approximate fair value due to the short-term nature of these instruments.

ASC 820 “Fair Value Measurements and Disclosures” provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

Fair value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.

Level 3 Significant unobservable inputs that cannot be corroborated by market data.

Fair values for short-term money market investments are determined from quotequoted prices in active markets for these money market funds, and are considered to be Level 1.

The carrying value of financial instruments in the Company’s condensed consolidated financial statements at September 30, 2016 and December 31, 2015 are as follows:

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(CONTINUED)

Recent Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board (“FASB”),FASB, issued Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends the guidance in U.S. generally accepted accounting principles on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and are to be adopted by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income.The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.

In February 2016, the FASB issued new lease accounting guidance (ASU No. 2016-02,Leases). Under the new guidance, at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach.The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.

On March 30, 2016, the Financial Accounting Standards Board (“FASB”)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 ofadopted this standard willeffective December 31, 2016. The adoption did not have a material effect on itsthe Company’s condensed consolidated financial statements.

In April 2016, the FASB issued Accounting Standards Update ASU No. 2016-10 “Revenue from Contracts with Customers (Topic 606)”, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”). ASU 2016-10 clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early application permitted. The Company is currently evaluatingcontinuing to evaluate the expected impact the adoption of this standard will havenew revenue guidance. The Company is currently preparing its assessment of the full financial impact of the new revenue recognition guidance, including the method of adoption, and intends to adopt the guidance when it becomes effective for the Company on its condensed consolidated financial statements.January 1, 2018.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements, continued

In May 2016, the FASB issued Accounting Standards Update ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606)”, “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The core principal of ASU 2016-12 is the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early application permitted. The Company is currently evaluatingcontinuing to evaluate the expected impact the adoption of this standard will havenew revenue guidance. The Company is currently preparing its assessment of the full financial impact of the new revenue recognition guidance, including the method of adoption, and intends to adopt the guidance when it becomes effective for the Company on its condensed consolidated financial statements.January 1, 2018.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Recent Accounting Pronouncements, continued

In August 2016, the FASB issued Accounting Standards Update ASU No. 2016-15 “Statement of Cash Flows (Topic 230)”, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). The amendments for this update provide guidance on the eight specific cash flows: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The provisions of this update are effective for annual and interim periods beginning after December 15, 2016, with early application permitted. The Company adopted this standard effective December 31, 2016. The adoption did not have a material effect on the Company’s condensed consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, “Clarifying the Definition of a Business” (“ASU 2017-01”), which provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 requires entities to use a screen test to determine when an integrated set of assets and activities is not a business or if the integrated set of assets and activities needs to be further evaluated against the framework. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.statements.

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 presented withindescribed in Note 10,1 –Business Organization, Liquidity, and Management’s Plans, Note 8 - Commitments and Contingencies and Note 11 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 3 – EQUIPMENT LOAN

On November 23, 2015, the Company entered into a reimbursement agreement with Magnum Vending Corp. (“Magnum”), an entity managed by Philip Thomas, the Company’s Chief Executive Officer and a director of the Company, and certain of his family members. In exchange for the exclusive right to stock vending machines owned by Magnum, the Company agreed to reimburse Magnum for the cost of products to stock the machines and the costs that Magnum incurred to acquire the machines including machines which were purchased with an equipment loan. The total principal amount of the payments underlying the agreement upon inception was $117,917. The reimbursements will be made in 35 monthly payments of principal and interest in the amount of $3,819 with an interest rate of 10%. Upon completion of these payments in October 2018, Magnum will transfer ownership of the vending machines to the Company. In addition, in exchange for the right to stock certain other vending machines that the Company has the right to use, the Company agreed to purchase the products required to be displayed in those vending machines from Magnum, at a price equal to Magnum’s cost for such products.products (See Note 10). The Company may terminate the agreement and all obligations to make future payments on ten days’ written notice to Magnum. As of September 30, 2016March 31, 2017 and December 31, 2015,2016, the outstanding balance on the equipment loan was $85,872$68,251 and $113,104,$76,474, respectively.

NOTE 4 – UBS CREDIT LINE OF CREDIT

On November 23, 2015 and December 10, 2015, LIBB obtained an aggregate of $1,000,000 in advances fromOctober 27, 2016, the Lender, constitutingCompany entered into a credit line with UBS (The “UBS Credit Line”). The UBS Credit Line has a borrowing capacity determined by 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 $250,000level of the approved advance fromcollateral pledged and bears interest at a floating rate, depending on the Lendertime requested for the borrowing. The interest is based on the ICE Swap Rate plus a margin of between 0.40% and during May 2016, LIBB obtained an additional $250,0000.70%. As of March 31, 2017, the interest rate on the UBS Credit Line was 3.483 %. The UBS Credit Line, when drawn, is collateralized by certain of the approved advances from the Lender, as a result of which as of May 20, 2016 the Available Amount was borrowed in full.

Company’s short-term investments. As of September 30, 2016March 31, 2017 and December 31, 2015,2016, the outstanding balance on the line of credit was $0 and $1,091,571,$1,280,275, respectively.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) As of March 31, 2017 and December 31, 2016, the Company’s borrowing capacity under the UBS Credit line was $521,587 and $19,725, respectively.

NOTE 45 – LINE OF CREDIT continued– RELATED PARTIES

Brentwood LIIT Corp.

The credit facility bears interest at a rate equal to the prime rate (3.5% at December 31, 2015 and September 30, 2016) plus 7.5%, compounded monthly, and matures onOn November 23, 2018. Effective January 10, 2016,2015, LIIT and LIBB entered into a Credit and Security Agreement (the “Credit Agreement”), by and among LIBB, as the Credit Agreement was amended such that interest was compounded onborrower, LIIT and LIIT (NZ) Ltd. (the “Lender”). The Lender is controlled by a quarterly basis. Uponrelated party, Eric Watson, who beneficially owned approximately 17.4% of the occurrenceCompany as of an event of default, theMarch 31, 2017. The Credit Agreement provides for an additional 8% interest pursuant to the terms of the agreement. The outstanding principal and interest under thea revolving credit facility are payable in cash onan amount of up to $3,500,000, subject to approval by the maturity date.lender. The Company also paid the Lender a one-time facility fee equalAvailable Amount may be increased, in increments of $500,000, up to 1.75% of the Facility Amount, which was capitalized and addedLIBB may obtain further advances, subject to the principal amountapproval 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.Lender.

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

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. Also, as part of the Recapitalization, the warrant was exchanged for 486,111 shares of the Company’s common stock. (SeeInduced Conversion below for the accounting of the Recapitalization).

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, warranties and covenants, including negative covenants with respect to the incurrence of indebtedness. As of September 30, 2016, the Company was in compliance with these covenants.

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 September 30, 2016, the net carrying amount of deferred financing costs was $954,113. 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 an 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. In connection with the reduction in the capacity of the Credit Facility, the Company recorded a charge of $408,000 to interest expense to reduce proportionally the unamortized deferred financing costs. Any amounts drawn from the Facility Amount require lender approval. The Recapitalization was effectuated upon the closing of the 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 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.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 4 – LINE OF CREDIT, continued

Induced conversion of the credit facility and the related warrants

As disclosed above, on July 29, 2016, as part of the Recapitalization, the outstanding balance and accrued interest on the credit facility and the Lender’s warrant to purchase 1,111,111 shares of the Company’s common stock was converted into a total of 908,083 shares of the Company’s common stock. The Company accounted for this transaction as an “induced conversion” in accordance with the Accounting Standards Codification (“ASC”) 470-20-40-16. The transaction qualifies as an inducement as the Company effectively lowered the exercise price of the warrant in order to induce the holder to convert the debt and warrants to shares of common stock. The Company’s purpose for the inducement was to improve the Company’s balance sheet and capitalization ahead of its proposed public offering.

ASC 470-20-40-16 prescribes that, upon an induced conversion of convertible debt, the Company should recognize in earnings the difference between (a) the fair value of the securities issued upon conversion and (b) the fair value of the securities that would have been issued in accordance with the original conversion terms. The Company determined that during April 2016, the Company’s common stock had a fair value of $5.50 per share. During April 2016, the Company determined that its common stock did not have sufficient trading volume for the market based trading price to be relied upon as a reliable measure of fair value. As such, the Company needed to utilize another measure in order to determine fair value. The Company determined that the best measure of fair value was the $5.50 price of shares issued upon the consummation of the Offering, which closed in July 2016. This fair value was consistent with the range of pricing established with the Company’s bankers ahead of the Offering, and aligned with the fact that the inducement transaction would only be effected upon the closing of the Offering.

During the three and nine months ended September 30, 2016, the Company recorded a non-cash charge of $1,587,954 related to the “induced conversion”, which is recorded on the Statement of Operations as loss on induced conversion of line of credit and warrants. The induced conversion charge was measured as of April 2016, the date the agreement was reached, and recorded on July 29, 2016, the date the conversion was consummated. The charge was calculated as follows:

NOTE 56 – STOCKHOLDERS’ EQUITY

From2017 Issuances

On January 1, 2016 to March 14, 2016,3, 2017, the Company sold 171,725 unitsissued 1,790 shares to investors at $4.00 per unit for gross proceedsa product broker. The shares had a fair value of $686,900. Each unit consists of one share$7,500.

On January 17, 2017, the Company issued 41,965 shares 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 memberdirectors of the Company’s Board of Directors, and 7,500Company. The shares were sold to Paul Vassilakos,issued in satisfaction of accrued director fees and had a memberfair value 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.

$175,000.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 56 – STOCKHOLDERS’ EQUITY continued

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 stock equal to 10% of the total shares of common stock included in the Units sold in the Second Offering to the Covered Investors, with an exercise price of $4.50 per share.

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. Such subscriptions were closed 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.

On January 26, 2016, 35,824 shares of common stock were issued to the non-employee members of the Board of Directors as compensation for their services during the year ended December 31, 2015.

On March 31, 2016, the Company issued 3,400 shares of common stock 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.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)(CONTINUED)

NOTE 5 – STOCKHOLDERS’ EQUITY,2017 Issuances, continued

On March 31, 2016,January 30, 2017, the Company issued 1,20061,208 shares of common stock 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 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 ofCompany’s common stock to consultants of the Company.Company in satisfaction of accrued obligations. The shares were valued based upon the value of such services. The fair value was $213,550. As a result, for the threeof March 31, 2017, $104,690 is included within prepaid expenses and nine months ended September 30, 2016, the Company recorded $0 and $26,800, respectively, in general and administrative expensesother current assets in the condensed consolidated statementsbalance sheets.

On March 27, 2017, the Company’s Board of operations.Directors approved the issuance of 5,000 and 25,000 shares of the Company’s common stock to directors and consultants, respectively, in consideration of services provided. The fair value of these shares was $112,853.

On March 31, 2016,27, 2017, the Company issued 5,000Company’s Board of Directors approved the issuance of 111,457 shares of the Company’s common stock to a consultant pursuant to a consulting services agreement. The termsconsultants of the agreement require the consultant to performCompany in consideration of services for the Company through February 23, 2017. For the three and nine months ended September 30, 2016, the Company recorded $5,455 and $10,909provided. The fair value of market research expense (reflected in selling and marketing expenses in the Condensed Consolidated Statement of Operations) and as a result, $9,091these shares was included in prepaid expenses in the accompanying balance sheet as of September 30, 2016.$437,598.

On March 31, 2016, the Company issued 15,833 shares of common stock 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. For the three and nine months ended September 30, 2016, the Company recorded $0 and $63,332 of market research expense and as a result, $0, was included in prepaid expenses in the accompanying balance sheet as of September 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 the consultant’s services.

On March 31, 2016, the Company issued 7,500 shares of common stock to an employee of the Company. During the three and nine months ended September 30, 2016, $0 and $30,000 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.

On July 29, 2016, the Company issued 10,000 shares of common stock to its Chief Financial Officer pursuant to his employment agreement. During the three and nine months ended September 30, 2016, $40,000 and $40,000 was included in general and administrative expenses in the accompanying condensed consolidated statements of operations related to this issuance.

On July 29, 2016, the Company issued 5,000 shares of common stock to a consultant in exchange for services. During the three and nine months ended September 30, 2016, $20,000 and $20,000 was included in general and administrative expenses in the accompanying condensed consolidated statements of operations related to this issuance.

On July 29, 2016, the Company issued 1,667 shares of common stock to a consultant pursuant to a consulting services agreement. During the three and nine months ended September 30, 2016, $9,169 and $9,169 was included in general and administrative expenses in the accompanying condensed consolidated statements of operations related to this issuance.

NOTE 67 – STOCK BASED COMPENSATION

Stock Options

On May 27, 2015, the Company’s board of directors adopted the 2015 Long-Term Incentive Equity Plan (“2015 Stock Option Plan”). The 2015 Stock Option Plan provides for the grant of stock options, stock appreciation rights, restricted stock and other stock-based awards to, among others, the officers, directors, employees and consultants of the Company. 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 underDuring January 2017, the 2015 Stock Option Plan was amended to increase the aggregate number of shares authorized for issuance by 283,333 shares to 750,000 shares.

On January 5, 2017, the Company granted theissued to various officers, of the Companydirectors, and Mr. Panza,employees options to purchase 194,667an aggregate of 220,867 shares atof the Company’s common stock. The options expire five years from the date of grant, have an exercise price of $3.75 which are exercisable until May 26, 2020. These$5.00, and vest quarterly over two years, beginning on April 5, 2017. The options vest onhave a quarterly basis over the two year period from the datefair value of issuance.$440,698.

On August 18, 2016, as part ofJanuary 30, 2017, pursuant to his consulting agreement, but not under the 2015 Stock Option Plan,Mr. Davidson, the Company’s board of directorsExecutive Chairman, was granted to Julian Davidson, an option to purchase 286,74471,686 shares of the Company’s common stock at(See Note 8). The option expires four and a half years from the date of grant, has an exercise price of $5.50 per share which expires$4.09, and vests in three equal installments on July 28, 2021. This option vested one third immediately, and then will vest one third onJanuary 30, 2017, July 28, 2017, and the remainder on July 28, 2018. The option has a fair value of $131,240.

On March 10, 2017, in connection with his amended and restated employment agreement, Mr. Thomas, the Company’s Chief Executive Officer (“CEO”), was granted an option to purchase 75,000 shares of the Company’s common stock. The option expires five years from the date of grant and has an exercise price of $4.50 per share. The option will vest in three annual installments beginning on the date of grant. The option has a fair value of $128,062.

On March 27, 2017, as compensation, the Company issued to a director an option to purchase 70,000 shares of the Company’s common stock. The option will expire five years from the date of grant, has an exercise price of $4.50 per share, and vests in three annual installments beginning on the date of grant. The option has a fair value of $130,266.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 – STOCK BASED COMPENSATION (CONTINUED)

Stock Options, continued

The Company determined the fair value of stock options granted based upon the assumptions as provided below.

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 on September 30, 2016.stock.

As of September 30, 2016,March 31, 2017, there was a total of $867,517$1,048,036 of unrecognized compensation expense related to unvested stock options. TheThis cost is expected to be recognized through 20182019 over a weighted average period of 1.371.33 years.

Stock Warrants

From January 1, 2016 through March 14, 2016,The Company accounts for all stock based compensation as an expense in connection with the Second Offering,financial statements and associated costs are measured at the Company issued warrants to purchase 171,725 sharesfair value of the Company’s common stock to investors at an exercise price of $6.00 per share. These warrants were fully vested upon issuance and expire on November 30, 2018.

From January 1, 2016 through March 14, 2016, in connection withaward or the Second Offering, the Company issued warrants to purchase 34,573 sharesfair value of the Company’s common stock to the placement agent at an exercise price of $4.50 per share. These warrants were fully vested upon issuance and expire on October 30, 2020.

On March 29, 2016 and March 31, 2016 in connection with the March Sales, the Company issued warrants to purchase 58,750 shares of the Company’s common stock at an exercise price of $6.00 per share. These warrants were fully vested upon issuance and expire on March 29, 2019.

On July 29, 2016, in connection with the consummation of the Offering, the Company issued warrants to purchase 31,522 shares of the Company’s 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.

service provided whichever is most readily determinable.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 67 – STOCK BASED COMPENSATION continued(CONTINUED)

Stock Warrants

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

Stock-Based Compensation Expense

The following tables summarize total stock-based compensation costs recognized for the three and nine months ended September 30, 2016March 31, 2017 and 2015:2016:

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

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 78 – 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 consolidated financial position, results of operations or cash flows. Legal costs related to these matters are expensed as they are incurred.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

Legal Proceedings, continued

On August 1, 2014, an action was filed by LIBB in the Supreme Court in the State of New York entitled Long Island Brand Beverages LLC v. Revolution Marketing, LLC (“Revolution”) and Ascent Talent, Model Promotion Ltd. LIBB is seeking damages of $10,000,000 for several claims including breach of contract and fraud occurring during 2014. Revolution has filed a counterclaim for breach of contract and related causes of action, claiming damages in the sum of $310,880, and seeking punitive damages of $5,000,000. Ascent has filed a pre-answer motion to dismiss LIBB’s complaint. LIBB filed papers in opposition toand the motion to dismiss.was submitted by March 9, 2015. In addition, Revolution has filed a motion to amend its answer to include cross-claims against Ascent which were not asserted in its original answer of record. On February 5, 2016, the Court rendered a decision, denying thedecision. The motion to dismiss was denied with the exception of two claims which the Court dismissed. In the same decision, the Court granted a separate motion filed by Revolution seeking to amend its answer to include cross claimscross-claims against Ascent. The Company’s management and legal counsel believebelieves it is too early to determine the probable outcome of this matter.

Brokerage Arrangements

The Company maintains arrangements with sales brokers who help with bringing new distributors and retail outlets to the Company. These sales brokers receive a commission for these services. CommissionsFor the three months ended March 31, 2017, commissions to these brokers currently rangeranged from 2-5% of sales. In addition, the Company sells its products through alternative vending channels. Commissions resulting from sales through these channels are currentlywere 42%. and 42% for the three months ended March 31, 2017 and 2016, respectively.

Employment Agreements

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 of Directors.

On June 6,9, 2016, the Company entered into an employment agreement with Richard AllenJulio X. Ponce to serve as Vice President of Southeast and Latin American Sales of the Company. Until December 31, 2016, Mr. Ponce was an owner of one of the Company’s Chief Financial Officer.distributors. Mr. Ponce’s primary duties shall be to advance the sales of ALO Juice. The agreement has a term of three years,employment agreement is from January 1, 2017 to December 31, 2017 and automatically renews for one year periods thereafter unless either party provides noticecan be extended by written mutual agreement of its decision not to renew.the parties. Mr. AllenPonce will receive a base salary of $170,000$90,000 and an incentive bonus of up to 50% of his base salary at the discretion of the Board of Directors. The Company granted Mr. Allen 8,333 shares of its common stock on May 31, 2017. The Company will grant to Mr. Allen that additional number of62,500 shares of the Company’s common stock which shall have fair market values equalbased on the introduction or procurement of sales and/or distributors of the Company’s products outside of the Southeast United States and an additional performance bonus of up to $50,000905,769 shares of the Company’s common stock based on eachsales of Maythe Company’s iced tea and ALO Juice product by Mr. Ponce to approved customers reaching target thresholds in 2017. The target thresholds are between $2.5 million and $5.5 million for ALO Juice and between $2.0 million and $4.0 million for the Company’s iced tea products. Notwithstanding the foregoing, if such sales in 2018 do not reach at least 60% of their 2017 levels, the performance bonus will not be payable.

On March 10, 2017, the Company entered into an amended and restated employment agreement with Mr. Thomas. The amended employment agreement has a term that runs until December 31, 20182019. Mr. Thomas will receive a base salary of $250,000, was paid $83,000 upon the signing of the agreement, and 2019.is eligible for paid incentive bonuses from the Company. Pursuant to the agreement, Mr. Thomas was also granted an option to purchase 75,000 shares of the Company’s common stock (See Note 7).

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

Consulting Agreements

On June 6, 2016, the Company entered into an amendment to the consulting agreement with Julian Davidson which provides for him to serve as the Company’s Executive Chairman. Either Mr. Davidson or the Company may terminate the consulting agreement with 30 days’ prior written notice. Pursuant to the consulting agreement, as in effect prior to its amendment and restatement as described below, the Company (a) paid to Mr. Davidson $10,000 per month, and (b) granted to Mr. Davidson 1,667 shares of common stock per month (an aggregate of 4,302 shares). The consulting agreement, as amended, contains provisions for protection of the Company’s intellectual property and confidentiality and non-competition restrictions for Mr. Davidson (generally imposing restrictions during the term of the consulting agreement, on (i) ownership or management of, or employment or consultation with, competing companies, (ii) soliciting employees to terminate their employment (iii) soliciting business from the Company’s customers, and (iv) soliciting prospective acquisition and investment candidates for purposes of acquiring or investing in such entity).

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 – COMMITMENTS AND CONTINGENCIES, continued

Consulting Agreements, continued

On August 18, 2016, the Company entered into a second amendment to the consulting agreement with Julian Davidson. The amendment modified the condition that was required to be satisfied for certain changes in the compensation payable to Mr. Davidson under the consulting agreement to take effect. After the amendment, upon the Company completing an equity raise with gross proceeds of at least $6,900,000, the monthly cash fee to Mr. Davidson increases to $20,000 per month, the monthly stock grant to Mr. Davidson is eliminated and Mr. Davidson receives a one-time cash bonus of $95,000 and a one-time grant of 50,000 shares of the Company’s common stock. The amendment also modified the compensation that will be payable to Mr. Davidson under his agreement. Mr. Davidson is entitled to receive an option to purchase 4% of the fully diluted common stock outstanding immediately after the Offering, or 286,744 shares of the Company’s common stock. On August 18, 2016, the Company granted to Mr. Davidson andan option to purchase 286,744 shares of common stock. (See Note 6 – Stock Based Compensation)

On October 5, 2016, the Company entered into an amended and restated consulting agreement with Julian Davidson (“Davidson Amendment”), effective as of September 29, 2016, which provides for him to continue to serve as the Company’s Executive Chairman. Mr. Davidson was entitled to enter

On March 1, 2017, the Company entered into the Davidson Amendment pursuant to the terms of his previously existinga consulting agreement as described above.

Underwith an investor relations and communications firm. The agreement commenced on March 1, 2017 for an initial term of two months. The agreement was renewed for the Davidson Amendment, (a) startingmonth of May 2017 and may be renewed on September 29, 2016,a monthly basis by the Company will pay to Mr. Davidson an annual fee of $250,000, payable $20,833 per month, (b) the Company will pay Mr. Davidson an incentive of $75,000 onCompany. The agreement shall terminate in 180 days from the date of the agreement. In consideration for services, the Company shall pay (a) $15,000 in cash on the signing of the contract and $15,000 on the 5^thday of each month thereafter, (b) up to $135,000 in ancillary budget (at the Company’s discretion) due each month for the balance of the contract, (c) issue 10,000 shares of common stock upon the execution of the agreement and will pay to him $165,000issue a 10,000 shares of common stock on the first anniversary5^th day of such date, (c) on September 29, 2016,each month of the agreement until termination or renewal of this agreement, and (d) the reimbursements of pre-approved travel or other expenses monthly.

Distribution Agreements

On March 14, 2017, the Company granted Mr. Davidson 15,000 sharesentered into a long-term strategic distribution agreement with Big Geyser, a large independent non-alcoholic beverage distributor in metro New York. Big Geyser will be the exclusive distributor of the Company’s common stock, (d) Mr. Davidsoniced tea and lemonade 18oz bottle products. The agreement became effective on April 24, 2017 and covers retail locations in the New York City metro region, including the five boroughs of New York City, Long Island, Westchester and Putnam County. This distribution coverage will be eligibleprovide the potential to receive annually an additional fee of up to 50% of his annual fee based on Consultant’s performance over each calendar year,significantly increase the distribution footprint and (e) uponallow the Company completing an offering or offerings that raises gross proceedsto streamline the business and bring additional focus to building the Company’s brand. As part of at least $3,000,000 from the sale of its equity securities, thendistribution agreement, the Company willhas also agreed to issue warrants to Mr. Davidson 20,000 shares ofBig Geyser in the second quarter as compensation for achieving certain performance targets.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

Leases

On June 6, 2014, the Company entered into a lease agreement. The lease commenced on July 1, 2014 and extends through June 30, 2017 and includes a two year extension option.

Rent expense for the three months ended March 31, 2017 and 2016 was $11,458 and $10,074, respectively.

Future minimum payments under the Company’s common stock and an option to purchase a 71,686 shares ofleases for the Company’s common stock with an exercise price equal to the fair market value of the common stock as of such date. Unless such option is granted under a existing long-term incentive equity plan ofthree months ended June 30, 2017 are $13,261.

In addition, the Company utilizes public warehouse space for its inventory. Public storage expense for the option will not be exercisable with respect to any of the underlying shares prior to obtaining shareholder approval for it.

Either Mr. Davidson or the Company may terminate the consulting agreement with 30 days’ prior written notice. The consulting agreement contains provisions for protection of the Company’s intellectual propertythree months ended March 31, 2017 and confidentiality2016 was $9,421 and non-competition restrictions for Mr. Davidson (generally imposing restrictions during the term of the consulting agreement, on (i) ownership or management of, or employment or consultation with, competing companies, (ii) soliciting employees to terminate their employment (iii) soliciting business from the Company’s customers, and (iv) soliciting prospective acquisition and investment candidates for purposes of acquiring or investing in such entity).$20,610, respectively.

NOTE 89 – MAJOR CUSTOMERS AND VENDORS

For the three months ended September 30,March 31, 2017 and 2016, threetwo customers accounted for 22%35% and 10%, 11%or 45% in the aggregate, and 11% of net sales. For the three months ended September 30, 2015, one customer accounted for 10% of net sales.

For the nine months ended September 30, 2016, threetwo customers accounted for 13%,16% and 12%, and 10%or 28% in the aggregate, of the Company’s net sales. For the nine months ended September 30, 2015, no customers accounted for more than 10% of net sales.sales, respectively

For the three months ended September 30,March 31, 2017 and 2016, two vendors accounted for 31% and September 30, 2015,22%, or 53% in the largestaggregate, and four vendors represented approximately 78% (five vendors)accounted for 19%, 18%, 18% and 80% (three vendors)16%, or 71% in the aggregate, of purchases, respectively. For the nine months ended September 30, 2016 and 2015, the largest vendors represented approximately 69% (four vendors) and 82% (four vendors) of purchases, respectively. As of September 30, 2016 two suppliers accounted for 18% and 13% of accounts payable, respectively. As of September 30, 2015 15% of accounts payable was with one vendor.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 910 - 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).

The Company recorded revenue related to sales to two entities, whose owners became employees of the Company during 2014. For the three months ended September 30, 2016 and 2015, sales to these related parties were $7,628 and $3,945, respectively and $7,936 and $35,140, respectively for the nine months ended September 30, 2016 and 2015. As of September 30, 2016, accounts receivable from these customers were $11,554. 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 September 30, 2016 and 2015, sales to this related party were $25 and $742, respectively. For the nine months ended September 30, 2016 and 2015, sales to this related party were $463 and $11,716, respectively. As of September 30, 2016, the amount due from this customer was $44,939. As of December 31, 2015, accounts receivable from this customer were $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 September 30,March 31, 2017 and 2016, and 2015, sales to this related party were $426$269 and $1,512, respectively. For the nine months ended September 30, 2016 and 2015, sales to this related party were $3,063 and $1,653,$1,158, respectively. As of September 30, 2016March 31, 2017 and December 31, 2015,2016, there was $0$269 and $518,$0, respectively, due from this related party which was included in accounts receivable in the condensed consolidated balance sheets. The Company also purchases product at cost, from this entity to supplement certain vending sales from this entity.sales. For the three and nine months ended September 30,March 31, 2017 and 2016, the Company purchased $0$3,342 and $17,514,$8,258, respectively, of product from this vendor.entity. As of September 30,March 31, 2017 and December 31, 2016, the outstanding balance due to this entity included in accounts payable was $0. As of December 31, 2015, the outstanding balance due to this entity included in accounts payable was $3,242.$4,042 and $10,043, respectively.

During the three and nine months ended September 30, 2016,On March 27, 2017, the Company accrued $77,250 and $232,250, respectively, in expenses relatedissued an option to fees payable topurchase 70,000 shares of 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 each receive common stock withto a fair value of $35,000 and $30,000 in cash, for their services through 2016.

A stockholder and a company owned by member of the Board of Directors ofin connection with services provided to the Company has paid certain expenses on behalfbeyond the Board of the Company.Director duties of this Director. As of September 30, 2016, the accounts payableMarch 31, 2017 and accrued expenses due to these parties were $0. As of December 31, 20152016 accounts payable and accrued expenses to these partiesa company wholly owned by this director’s company were $87,258.$9,375 and $4,032, respectively.

NOTE 1011 – SUBSEQUENT EVENTS

Long-Term Equity Incentive Plan

Filing of registration statement

On October 12, 2016,April 14, 2017, the Company filed a “shelf” registration statement on Form S-3/A amendment No. 1, which became effective on October 14, 2016.Company’s board of directors adopted the 2017 Long-Term Incentive Equity Plan (“2017 Stock Option Plan”). The “shelf” registration statement allows2017 Stock Option Plan provides for the Company from timegrant of stock options, stock appreciation rights, restricted stock and other stock-based awards to, time to sell any combinationamong others, the officers, directors, employees and consultants of debt or equity securities described in the registration statement up to aggregate initial offering price not to exceed $50,000,000.Company. The total number of shares reserved under the 2017 Stock Option Plan is 850,000.

LONG ISLAND ICED TEA CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 11 – SUBSEQUENT EVENTS (CONTINUED)

Option Issuance

Financing ArrangementOn April 14, 2017, the Company’s issued options to purchase 127,500 shares of the Company’s common stock under the 2015 Stock Option Plan and 187,647 shares of the Company’s common stock under the 2017 Stock Option Plan to various employees.

Employment Agreement

On October 27, 2016,April 18, 2017, the Company entered into a credit line (the “UBS Credit Line”)an employment agreement with UBS Bank USA (“UBS”). The UBS Credit Line has a borrowing capacity of $1,300,000 and bears interest at a floating rate, depending onVirginia Morris to serve as the time requestedCompany’s Chief Sales & Marketing Officer. Ms. Morris’s primary responsibilities will be driving the growth agenda for the borrowing. The interest is based onCompany’s entire portfolio of brands and overseeing key sales and marketing functions including brand management, channel strategy development and execution, and product innovation. Pursuant to the ICE Swap Rate plus a margin of between 0.40% and 0.70%. As of November 11, 2016, the interest rate on the UBS Credit Lineemployment agreement, Ms. Morris was 3.089%. The UBS Credit Line is collateralized by certainawarded an option to purchase 27,500 shares of the Company’s short-term investments. Ascommon stock under the 2015 Stock Option Plan, and an additional option to purchase 42,500 shares of November 11, 2016, $400,000 was outstandingthe Company’s common stock under the 2017 Stock Option Plan. The options have an exercise price of $4.50 and vest annually in three equal installments beginning on the UBS Credit Line.

date of grant. Ms. Morris was also awarded 25,000 shares of the Company’s common stock prior to the execution of her employment agreement for services provided to the Company.

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 III of this quarterly report.our annual report on Form 10-K filed on March 31, 2017. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

The following discussion should be read in conjunction with our condensed consolidated interim financial statements and footnotes thereto contained in this quarterly report.

Overview

We are a holding company operating through our wholly-owned subsidiary, LIBB. We are engaged in the production and distribution of premium Non-Alcoholic ready-to-drink (“NARTD”) iced tea in the beverage industry. We are currently organized around ourunder its flagship brand, Long Island Iced Tea, a premium NARTD tea made from a proprietary recipe and with quality components. Long Island Iced Tea is sold in 12 states across the United States, primarily on the East Coast, 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:our beverages: “consumers on the go” and “health conscious consumers.” “Consumers on the go” are families, employees, students and other consumers who lead a busy lifestyle. With increasingly hectic and demanding schedules, there is a need for products that are accessible and readily available. “Health conscious consumers” are individuals who are becoming more interested and better educated on what is included in their diets, causing them to shift away from the less healthy options, such as carbonated soft drinks, towards alternative beverages such as iced tea.

We produce a 100% brewed tea, using black tea leaves, purified water and natural cane sugar or sucralose. Flavors change from time to time, and have included lemon, peach, raspberry, guava, mango, diet lemon, diet peach, sweet tea, green tea and honey, sweet tea and half tea and half lemonade. We also offer lower calorie iced tea in twelve (12) ounce bottles. The lower calorie flavor options include mango, raspberry and peach. We also sell the iced tea in gallon bottles with flavor options including lemon, peach, green tea and honey, sweet tea and mango. We also sell a private label version of its iced tea products. In addition, in order to service certain vending contracts, we sell snacks and other beverage products on a limited basis.

We distribute an aloe vera derived juice beverage (“ALO Juice”). During the three months ended March 31, 2017, the ALO Juice product accounted for approximately 36% of our condensed consolidated net sales.

On March 14, 2017, we announced that we are expanding our brand to include lemonade. Lemonade will be available in nine flavors and will be offered at retail in both single and 12-packs of 18oz bottles.

We aspire to be a market leader in the development of beverages that are convenient and appealing to consumers. There are two major target markets for our beverages: consumers on the go and health conscious consumers. Consumers on the go are families, employees, students and other consumers who lead a busy lifestyle. With increasingly hectic and demanding schedules, there is a need for products that are accessible and readily available. Health conscious consumers are individuals who are becoming more interested and better educated on what is included in their diets, causing them to shift away from theoptions perceived as less healthy options, such as carbonated soft drinks “CSD” towards alternative beverages such as iced tea.

In addition,We also continually seek to better develop emerging markets, as well as expand our overall geographic footprint. We entered into new business arrangements involving international specialists contracted to (i) identify new market opportunities and (ii) assist in the overall management of our international expansion efforts. During 2016, the Company announced new distributorships in Columbia, Honduras, Dominican Republic, St Martin and Bermuda to whom we have begun exploring global export opportunities, with product now distributedshipped productduring the second quarter of 2017. We also worked alongside existing distributor partnerships in Puerto Rico, Canada and South Korea to further expand distribution points throughout their respective markets. Additional new developments include new retail partnerships opened with supermarket chains such as Pueblos and many Caribbean nations. We have just announced a partnership with a Canadian distributor, who will help us to distribute our products through Canada.Supermax in Puerto Rico and Loblaws in Canada, and multiple reorders received from the South Korean distributor.

We were incorporated on December 23, 2014 in the State of Delaware. Our corporate offices are located at 116 Charlotte Avenue, Hicksville, NY 11801 and our telephone number at that location is (855) 542-2832.

Recent Developments

PublicJanuary 2017 Offering

On July 28 and 29, 2016,January 30, 2017, we sold 1,270,156 sharesconsummated a public offering (the “Shares”“January 2017 Offering”) of an aggregate of 376,340 shares of our common stock, through Alexander Capital, L.P., as placement agent, pursuant to the terms of a selling agent agreement, dated January 25, 2017, with the placement agent and subscription agreements with each of the investors in the offering. Of the aggregate number of shares sold, 300,000 shares were sold to the public at a price of $5.50$4.00 per share through Network I Financial Services, Inc. acting asand 76,340 of the shares were sold to our officers and directors at a sellingprice of $4.10 per share, the most recent closing bid price of the common stock at the time the officers and directors executed their subscription agreements. The offering generated gross proceeds of $1,513,000 and net proceeds of $1,429,740, after payment of the placement agent on a “best efforts” basis,fees and other offering expenses.

The offering was made pursuant to the Company’sour existing shelf registration statement on Form S-1S-3 (File No. 333-210669) (the “Offering”).