UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period endedMarch 31, 2015
| ¨ | Transition report under Section 13 or 15(d) of the Exchange Act of 1934 |
For the transition period from _____________ to _____________
Commission File Number000-53806
Cullen Agricultural Holding Corp.
(Exact Name of Issuer as Specified in Its Charter)
| Delaware | 27-0863248 |
(State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| 1193 Seven Oaks Rd., Waynesboro, GA 30830 |
| (Address of Principal Executive Office) |
(706) 621-6737
(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 Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx 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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| | Large accelerated filer¨ | Accelerated filer¨ |
| | Non-accelerated filer¨ | Smaller reporting companyx |
| | (Do not check if smaller reporting company) | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yesx No¨
As of May 13, 2015, 22,780,714 shares of common stock, par value $.0001 per share, were issued and outstanding.
CULLEN AGRICULTURAL HOLDING CORP.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2015
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q of Cullen Agricultural Holding Corp., and the information incorporated by reference in it, 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”). References in this report to “we,” “us”, “our company” or “the Company” refer to Cullen Agricultural Holding Corp.
Our 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. Forward-looking statements in this report may include, for example, statements about:
| · | Our ability to obtain necessary financing; |
| · | Increases of costs of operations; |
| · | Continued compliance with government regulations; and |
| · | General economic conditions. |
The forward-looking statements contained or incorporated by reference in this 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 Quarterly Report in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 4, 2015 in the section entitled "Risk Factors." 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.
PART I.
FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
Cullen Agricultural Holding Corp. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
| ASSETS |
| | | March 31, 2015 | | | | |
| | | (Unaudited) | | | December 31, 2014 | |
| CURRENT ASSETS | | | | | | |
| Cash | | $ | 190,170 | | | $ | 489,069 | |
| Receivable from related party | | | 1,871 | | | | 126,871 | |
| Prepaid expenses and other current assets | | | 141,321 | | | | 130,226 | |
| Total Current Assets | | | 333,362 | | | | 746,166 | |
| | | | | | | | | |
| OTHER ASSETS | | | | | | | | |
| Notes receivable | | | 1,750,000 | | | | 1,500,000 | |
| Property and equipment, net | | | 3,326 | | | | 3,326 | |
| | | | | | | | | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 2,086,688 | | | $ | 2,249,492 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | |
| Accrued expenses | | $ | 70,106 | | | $ | 51,869 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 70,106 | | | | 51,869 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| STOCKHOLDERS' EQUITY | | | | | | | | |
| Preferred stock, par value $0.0001; authorized 1,000,000 shares; | | | | | | | | |
| no shares issued and outstanding | | | - | | | | - | |
| Common stock, par value $0.0001; 200,000,000 shares authorized; | | | | | | | | |
| 22,780,714 shares issued and outstanding | | | | | | | | |
| at March 31, 2015 and December 31, 2014. | | | 2,279 | | | | 2,279 | |
| Additional paid-in capital | | | 7,491,566 | | | | 7,491,566 | |
| Accumulated deficit | | | (5,477,263 | ) | | | (5,296,222 | ) |
| | | | | | | | | |
| TOTAL STOCKHOLDERS' EQUITY | | | 2,016,582 | | | | 2,197,623 | |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 2,086,688 | | | $ | 2,249,492 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
Cullen Agricultural Holding Corp. and Subsidiaries
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| | | For the Three | | | For the Three | |
| | | months ended | | | months ended | |
| | | March 31, 2015 | | | March 31, 2014 | |
| | | | | | | |
| Revenues | | $ | -- | | | $ | -- | |
| | | | | | | | | |
| General and administrative expenses | | | 202,209 | | | | 85,117 | |
| | | | | | | | | |
| LOSS FROM OPERATIONS | | | (202,209 | ) | | | (85,117 | ) |
| | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | | | | | | |
| Interest income - notes receivable | | | 22,438 | | | | 20,713 | |
| Interest expense - note payable | | | -- | | | | (75 | ) |
| | | | | | | | | |
| TOTAL OTHER INCOME | | | 22,438 | | | | 20,638 | |
| | | | | | | | | |
| LOSS BEFORE TAXES | | | (179,771 | ) | | | (64,479 | ) |
| | | | | | | | | |
| INCOME TAXES | | | 1,270 | | | | 1,270 | |
| | | | | | | | | |
| NET LOSS | | $ | (181,041 | ) | | $ | (65,749 | ) |
| | | | | | | | | |
| Weighted average number of common shares outstanding – basic and diluted | | | 22,780,714 | | | | 19,630,714 | |
| | | | | | | | | |
| Basic and diluted net loss per share | | $ | (0.01 | ) | | $ | (0.00 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
Cullen Agricultural Holding Corp. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2015
| | | Common Stock | | | Additional | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Paid-in Capital | | | Deficit | | | Total | |
| | | | | | | | | | | | | | | | |
| BALANCE - January 1, 2015 | | | 22,780,714 | | | $ | 2,279 | | | $ | 7,491,566 | | | $ | (5,296,222 | ) | | $ | 2,197,623 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | -- | | | | -- | | | | -- | | | | (181,041 | ) | | | (181,041 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| BALANCE - March 31, 2015 (Unaudited) | | | 22,780,714 | | | $ | 2,279 | | | $ | 7,491,566 | | | $ | (5,477,263 | ) | | $ | 2,016,582 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
Cullen Agricultural Holding Corp. and Subsidiaries
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | For the Three Months Ended March 31, 2015 | | | For the Three Months Ended March 31, 2014 | |
| | | | | | | |
| Cash Flows from Operating Activities | | | | | | | | |
| Net loss | | $ | (181,041 | ) | | $ | (65,749 | ) |
| Changes in operating assets and liabilities: | | | | | | | | |
| Prepaid expenses and other current assets | | | (11,095 | ) | | | 20,577 | |
| Accrued expenses | | | 18,237 | | | | 24,948 | |
| NET CASH USED IN OPERATING ACTIVITIES | | | (173,899 | ) | | | (20,224 | ) |
| | | | | | | | | |
| Cash Flows from Investing Activities | | | | | | | | |
| Cash received from note receivable | | | 125,000 | | | | - | |
| Issuance of notes receivable | | | (250,000 | ) | | | - | |
| NET CASH USED IN INVESTING ACTIVITIES | | | (125,000 | ) | | | - | |
| | | | | | | | | |
| NET DECREASE IN CASH | | | (298,899 | ) | | | (20,224 | ) |
| | | | | | | | | |
| CASH - Beginning | | | 489,069 | | | | 678,082 | |
| CASH - Ending | | $ | 190,170 | | | $ | 657,858 | |
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid during the period for: | | | | | | | | |
| Interest | | $ | - | | | $ | - | |
| Taxes | | $ | 1,270 | | | $ | - | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES
(Unaudited)
NOTES TO THE UNAUDITED CONSENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization, Business Operations and Significant Accounting Policies
Organization and Nature of Operations
Cullen Agricultural Holding Corp. (the “Company”, “we”, “us” or “our”) was incorporated in Delaware on August 27, 2009. To date, the Company has not generated any revenue.
We were formed as a wholly-owned subsidiary of Triplecrown Acquisition Corp. (“Triplecrown”), a blank check company. CAT Merger Sub, Inc. (“Merger Sub”), a Georgia corporation, was incorporated as our wholly-owned subsidiary on August 31, 2009. We were formed in order to allow Triplecrown to complete a business combination (the “Merger”) with Cullen Agricultural Technologies, Inc. (“Cullen Agritech”), as contemplated by the Agreement and Plan of Reorganization (the “Merger Agreement”), dated as of September 4, 2009, as amended, among Triplecrown, the Company, Merger Sub, Cullen Agritech and Cullen Inc. Holdings Ltd. (“Cullen Holdings”). Cullen Agritech was formed on June 3, 2009. Cullen Agritech’s primary operations are conducted through Natural Dairy Inc., a wholly owned subsidiary of Cullen Agritech. Cullen Holdings is an entity controlled by Eric J. Watson, our former Chief Executive Officer, Secretary, Chairman of the Board and Treasurer and, prior to the Merger, was the holder of all of the outstanding common stock of Cullen Agritech.
Pursuant to the Merger, (i) Triplecrown merged with and into the Company with the Company surviving as the new publicly-traded corporation and (ii) Merger Sub merged with and into Cullen Agritech with Cullen Agritech surviving as a wholly owned subsidiary of the Company. As a result of the Merger, the former security holders of Triplecrown and Cullen Agritech became the security holders of the Company. Thus, the Company became a holding company, operating through its wholly-owned subsidiary, Cullen Agritech. The Merger was consummated on October 22, 2009.
On December 31, 2014, the Company entered into an Agreement and Plan of Reorganization by and among the Company, Long Island Iced Tea Corp., a Delaware corporation and a wholly owned subsidiary of the Company (“Holdco”), Cullen Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Holdco (“Parent Merger Sub”), LIBB Acquisition Sub, LLC, a New York limited liability company and a wholly owned subsidiary of Holdco (“LIBB Merger Sub” and together with Parent Merger Sub, the “Merger Subs”), Long Island Brand Beverages, LLC, a New York limited liability company (“LIBB”), Phillip Thomas and Thomas Panza, each a member of LIBB. On April 23, 2015, the parties entered into an amendment to the Agreement and Plan of Reorganization (See Note 5) (the amendment and the Agreement and Plan of Reorganization collectively referred to herein as the “Merger Agreement”). Pursuant to the Merger Agreement, among other things, (i) Parent Merger Sub will merge with and into the Company (the “Parent Merger”), with the Company surviving as a wholly owned subsidiary of Holdco and with the Company’s stockholders receiving newly issued shares of common stock, par value $0.0001 per share, of Holdco, at the rate of one share of Holdco for every 15 shares of the Company’s common stock (ii) LIBB Merger Sub will merge with and into LIBB (the “Company Merger,” and together with the Parent Merger, the “Mergers”), with LIBB surviving as a wholly owned subsidiary of Holdco and (iii) the members of LIBB will receive an aggregate of 2,633,334 newly issued shares of Holdco common stock, subject to adjustment as described below.
If LIBB’s estimated net working capital at the closing is less than its net working capital target, the number of shares of Holdco common stock to be received by the LIBB members at the closing will be reduced by a number of shares, allocated among the LIBB members pro rata, equal to such deficiency divided by $0.20. If LIBB’s estimated net working capital at the closing is more than its net working capital target, the number of shares of Holdco common stock to be received by the LIBB members at the closing will be increased by a number of shares, allocated among the LIBB members pro rata, equal to such excess divided by $3.00. LIBB’s net working capital target was originally $70,069. However, because the closing will occur after February 15, 2015, the target will be reduced by $3,333 for each day after such date through and including the closing date.
CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES
(Unaudited)
NOTES TO THE UNAUDITED CONSENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization, Business Operations and Significant Accounting Policies, continued
Organization and Nature of Operations, continued
If the Company’s estimated net working capital at the closing is more than its net working capital target, the number of shares of Holdco common stock to be received by the LIBB members at the closing will be reduced by a number of shares, allocated among the LIBB members pro rata, equal to such excess divided by $3.00. If the Company’s estimated net working capital at the closing is less than its net working capital target, the number of shares of Holdco common stock to be received by the LIBB members at the closing will be increased by a number of shares, allocated among the LIBB members pro rata, equal to such deficiency divided by $3.00. The Company’s net working capital target was originally $786,985. However, because the closing will occur after February 15, 2015, the target will be reduced by $667 for each day after such date through and including the closing date.
LIBB operates in the ready-to-drink tea segment of the beverage industry. LIBB has developed non-alcoholic, premium iced tea bottled beverages made with quality ingredients that are offered at an affordable price. LIBB is currently organized around its flagship brand Long Island Iced Tea, a ready-to-drink, proprietary recipe iced tea sold primarily on the East Coast of the United States through national and regional wholesale and supermarket chains and a network of distributors.
For accounting purposes, the transactions will be treated as an acquisition of the Company by LIBB and as a recapitalization of LIBB, as the former LIBB members will hold a large percent of the Holdco shares and will exercise significant influence over the operating and financial policies of the consolidated entity and the Company was a public shell company at the time of the transaction. Pursuant to Accounting Standards Codification (“ASC”) 805-10-55-11 through 55-15, the merger or acquisition of a private operating company into a non-operating public shell with nominal assets is considered a capital transaction in substance rather than a business combination.
The stockholder meeting to approve the proposed Merger is scheduled for May 26, 2015 and the parties anticipate consummating the Merger shortly thereafter.
Upon the consummation of the Merger, the combined entity will become a new publicly traded company. Through March 31, 2015, the Company has provided loans aggregating $1,750,000 to LIBB. The Merger Agreement between the Company and LIBB has not occurred and there is no assurance that such a merger will occur. The Company’s activities are subject to significant risks and uncertainties, including the risk that the Company will not be able to merge with a suitable operating business or that such operating business, once acquired, will not perform as expected.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete condensed consolidated interim financial statements. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. In addition, the December 31, 2014 balance sheet data was derived from the audited consolidated financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements, in the opinion of management, include all adjustments necessary for a fair presentation. All such adjustments are of a normal recurring nature.
These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2014 filed on March 4, 2015. The accounting policies used in preparing these unaudited condensed consolidated financial statements are consistent with those described in the December 31, 2014 audited consolidated financial statements.
CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES
(Unaudited)
NOTES TO THE UNAUDITED CONSENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization, Business Operations and Significant Accounting Policies, continued
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Cullen Agritech, including its wholly owned subsidiary, Natural Dairy. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Income (Loss) Per Share
The Company follows the provisions of FASB ASC 260, “Earnings Per Share” (“ASC 260”). In accordance with ASC 260, earnings per common share amounts (“Basic EPS”) are computed by dividing earnings by the weighted average number of common shares outstanding for the period. Earnings per common share amounts, assuming dilution (“Diluted EPS”), gives effect to dilutive options, warrants, and other potential common stock outstanding during the period. ASC 260 requires the presentation of both Basic EPS and Diluted EPS on the face of the statements of operations.
Basic earnings per share is calculated using the average number of common shares outstanding and diluted earnings per share is computed on the basis of the average number of common shares outstanding plus the effect of outstanding warrants using the “treasury stock method.”
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740, "Income Taxes" ("ASC 740"). ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and establishes for all entities a minimum threshold for financial statement recognition of the benefit of tax positions, and requires certain expanded disclosures. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company's assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. 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 liability. In management's opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
The Company has identified its federal tax return and its state tax return in Georgia as "major" tax jurisdictions. Based on the Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's condensed consolidated financial statements. The evaluation was performed for tax years 2011 through 2014 which are open for tax authority review. The Company believes that its income tax positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position or results of operations.
The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of income tax expense. There were no amounts accrued for penalties and interest for the three months ended March 31, 2015 and March 31, 2014, as there were no material uncertain tax positions outstanding as of the ends of such periods. The Company does not expect that these conditions will change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.
CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES
(Unaudited)
NOTES TO THE UNAUDITED CONSENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -Organization, Business Operations and Significant Accounting Policies, continued
Income Taxes, continued
As of March 31, 2015, the Company has an estimated net operating loss carry forward (“NOL”) of approximately $5,457,000 which begins to expire starting in 2029. The Company has determined that the deferred tax asset has no value at this time, as the Company does not believe it will utilize these losses in the future, and accordingly has recorded a valuation allowance of 100% of the deferred tax asset.
Recently Issued and Adopted Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09) "Revenue from Contracts with Customers." ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. On April 1, 2015, the FASB voted to propose to defer the effective date of the new revenue recognition standard by one year. The FASB plans to expose its decisions for a thirty day public comment period in a proposed Accounting Standards Update (ASU), which is expected to be issued sometime during the second quarter of 2015. On April 1, 2015 the FASB decided to permit the adoption of the new revenue standard early, but not before the annual periods beginning after December 15, 2016. A public organization would apply the new revenue standard to all interim reporting periods within the year of adoption. We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our condensed consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under U.S. GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, U.S. GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
Note 2 –Receivable from Related Party
As of March 31, 2015, $1,871 was due from Hart Acquisitions LLC (“Hart”). As of December 31, 2014, $126,871 (including $125,000 from the sale of equipment which was received by the Company during the three months ended March 31, 2015) was due from Hart.
CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES
(Unaudited)
NOTES TO THE UNAUDITED CONSENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 -Notes Receivable
On November 19, 2013, the Company provided a loan in the amount of $600,000 to LIBB. On December 5, 2013, the Company provided a second loan to the LIBB in the amount of $600,000. On April 1, 2014, the Company provided a third loan in the amount of $300,000 to LIBB. On November 7, 2014, the Company and LIBB entered into an amendment to the promissory notes evidencing the loans described above to extend the maturity date of the promissory notes to March 15, 2015. On March 3, 2015, the Company and LIBB entered into an amendment of the promissory notes evidencing the loans described above to extend the maturity of the promissory notes to March 15, 2016. On March 26, 2015, the Company provided a fourth loan in the amount of $250,000 to LIBB maturing on March 15, 2016.Pursuant to the terms of the respective promissory notes, the loans bear interest at a rate of 6% per annum.
During the three months ended March 31, 2015 and 2014, the Company recorded interest income of $22,438 and $20,713, respectively, related to these notes.
As of March 31, 2015, accrued interest related to these loans was $114,904 which is included in prepaid expenses and other current assets, on the accompanying condensed consolidated balance sheets. LIBB has granted the Company a security interest in certain of LIBB’s accounts receivable and inventory.
Note 4 - Commitments and Contingencies
On October 3, 2014, an action was filed entitled Madwell LLC (“Madwell”) v. Long Island Brand Beverages LLC, its Chief Executive Officer, and Paul Vassilakos, the Company’s Chief Executive Officer, Index No.: 509081/2014, in the Supreme Court of New York by Madwell. Madwell is seeking $940,000, which includes $440,000 for breach of contract and payment of services as well as punitive damages of $500,000. The Company has agreed to indemnify Mr. Vassilakos for any expenses he incurs in connection with such litigation. The Company does not believe that Mr. Vassilakos’ expenses in connection with such litigation will be material.
Note 5-Subsequent Events
The Company evaluates events that occurred after the balance sheet date but before the consolidated financial statements are issued. Based upon the evaluation, other than as described below, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements.
On April 23, 2015, the Company entered into Amendment No. 1 to the Agreement and Plan of Reorganization with Holdco, Parent Merger Sub, Merger Sub, LIBB and the Founders. The amendment changed the ratio at which the Company’s common stock would be converted into Holdco common stock from a ratio of 1-to-1 to a ratio of 15-to-1 and changed all other figures accordingly.
On May 1, 2015, the Securities and Exchange Commission declared Holdco’s registration statement on Form S-4 relating to the Merger effective. The Company’s meeting to approve the Merger is scheduled for May 26, 2015 and the parties anticipate consummating the Merger shortly thereafter.
| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with our condensed consolidated financial statements and footnotes thereto contained in this report.
Overview and History
We conducted our operations through our wholly-owned subsidiary, Cullen Agricultural Technologies Inc. (“Cullen Agritech”). Cullen Agritech conducts its operations primarily through its wholly-owned subsidiary, Natural Dairy Inc. (“Natural Dairy”). To date, we have not generated any revenue.
We were incorporated in Delaware on August 27, 2009. We were formed in order to allow Triplecrown Acquisition Corp. (“Triplecrown”), a blank check company, to complete a business combination (the “Merger”) with Cullen Agritech, as contemplated by the Agreement and Plan of Reorganization, dated as of September 4, 2009, as amended, among us, Triplecrown, CAT Merger Sub, Inc. (“Merger Sub”), Cullen Agritech and Cullen Inc. Holdings Ltd. (“Cullen Holdings”). Prior to the Merger, we were a wholly owned subsidiary of Triplecrown, Merger Sub was our wholly owned subsidiary and Cullen Holdings was the sole stockholder of Cullen Agritech. Pursuant to the Merger, (i) Triplecrown merged with and into the Company with the Company surviving as the new publicly-traded corporation and (ii) Merger Sub merged with and into Cullen Agritech with Cullen Agritech surviving as the Company’s wholly owned subsidiary. As a result of the Merger, the former security holders of Triplecrown and Cullen Agritech became our security holders and we became a public holding company, operating through Cullen Agritech.
Our previous focus had been to use our intellectual property in forage and animal sciences to improve agricultural yields. However, we were unable to obtain the necessary funding to support the implementation of our business plan. Accordingly, we began exploring all financing and strategic alternatives available to us. As discussed below, on December 31, 2014, we entered into an agreement to merge with an operating business.
Merger Agreement
On December 31, 2014, we entered into the Merger Agreement by and among the Company, Holdco, Parent Merger Sub, LIBB Merger Sub, LIBB, Phil Thomas and Thomas Panza, each a member of LIBB. On April 23, 2015, the parties entered into an amendment to the Merger Agreement. Pursuant to the Merger Agreement, as amended, among other things, (i) Parent Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Holdco and with the Company’s stockholders receiving newly issued shares of common stock, par value $0.0001 per share, of Holdco, at the rate of one share of Holdco for every 15 shares of the Company’s common stock, (ii) LIBB Merger Sub will merge with and into LIBB, with LIBB surviving as a wholly owned subsidiary of Holdco and (iii) the holders of the LIBB membership interests will receive 2,633,334 shares of common stock of Holdco, subject to adjustment based on LIBB’s and our net working capital (as defined in the Merger Agreement).
Upon the consummation of the Mergers, (i) Holdco will become a new publicly traded company, (ii) the Company and LIBB will become wholly-owned subsidiaries of Holdco and (iii) assuming that there are no adjustments to the merger consideration pursuant to the Merger Agreement, the former members of LIBB will own approximately 63% of the stock of Holdco and the former stockholders of the Company will own the remaining 37%.
For accounting purposes, the transactions will be treated as an acquisition of our Company by LIBB and as a recapitalization of LIBB, as the former LIBB members will hold a large percent of the Holdco shares and will exercise significant influence over the operating and financial policies of the consolidated entity and we were 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.
The Mergers are expected to be consummated in the second fiscal quarter of 2015, after the fulfillment of certain closing conditions set forth in the Merger Agreement.
In the event the Mergers are not consummated, our plan will be to seek, investigate, and if such investigation warrants, acquire one or more operating businesses desiring the perceived advantages of a publicly held corporation. We will not restrict our search to any specific business, industry, or geographical location, and may participate in business ventures of virtually any kind or nature.
Results of Operations
For the three months ended March 31, 2015, we had a net loss of $181,041. We did not generate any revenues during this period. Our operating expenses of $202,209 for the three months ended March 31, 2015 consisted primarily of legal, accounting and consulting fees and other general corporate and administrative expenses of $60,674, $91,825, $4,207 and $45,503, respectively.
For the three months ended March 31, 2014, we had a net loss of $65,749. We did not generate any revenues during this period. Our operating expenses of $85,117 for the three months ended March 31, 2014 consisted primarily of legal, accounting and consulting fees and other general corporate and administrative expenses of $6,193, $58,139, $4,156 and $16,629, respectively.
For the three months ended March 31, 2015, we had other income, net, of $22,438 related to interest income on notes receivable.
For the three months ended March 31, 2014, we had other income, net, of $20,638 related to interest income on notes receivable and note payable interest expense related to a tractor.
Liquidity and Capital Resources
As of March 31, 2015, we had $190,170 of cash and working capital of $263,256. The Company believes that it has sufficient liquidity to meet its operating requirements for the next twelve months.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or acquired any non-financial assets.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 to the condensed consolidated financial statements. However certain accounting policies are particularly important to the portrayal of financial position and results of operations and require the application of significant judgments by management. In applying those policies, management used its judgment to determine the appropriate assumptions to be used in determination of certain estimates. Our accounting policy will be to use estimates based on terms of existing contracts, observance of trends in the industry and information available from outside sources, as appropriate.
See Recent Accounting Pronouncements in Note 1 to the condensed consolidated financial statements in Item 1.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file with the SEC is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As required by Rules 13a-15 and 15d-15 under the Exchange Act, our chief executive officer and treasurer (our principal executive and principal financial and accounting officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2015.
Based on this evaluation, our principal executive and principal financial and accounting officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of March 31, 2015.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Please see Note 4 to our unaudited notes to financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for information on legal proceedings related to the Company.
| 31 | Section 302 Certification by CEO |
| 32 | Section 906 Certification by CEO |
| 101 | Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2015, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statement of Changes in Stockholders' Equity, (iv) Condensed Consolidated Statement of Cash Flows and (v) Notes to Unaudited Condensed Consolidated Financial Statements, as blocks of text and in detail. |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 13, 2015
| | CULLEN AGRICULTURAL HOLDING CORP. |
| | |
| | /s/ Paul N. Vassilakos |
| | Paul N. Vassilakos |
| | Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) |
