Financial Statements
	Years Ended December 31, 2016 and 2015

 

 

 

Financial Statements

Years Ended December 31, 2016 and 2015

 

 

Marley Beverage Company, LLC

 

Contents

 

Independent Auditor’s Report	3
Financial Statements
Balance Sheets as of December 31, 2016 and 2015	5
Statements of Operations for the Years Ended December 31, 2016 and 2015	6
Statements of Changes in Members’ Deficit for the Years Ended December 31, 2016 and 2015	7
Statements of Cash Flows for the Years Ended December 31, 2016 and 2015	8
Notes to Financial Statements	9-14

 

 

 

Independent Auditor’s Report

 

To the Members

Marley Beverage Company, LLC

 

We have audited the accompanying financial statements of Marley Beverage Company, LLC (the “Company”) which comprise the balance sheets as of December 31, 2016 and 2015, and the related statements of operations, changes in members’ deficit, and cash flows for the years then ended, and the related notes to the financial statements.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Marley Beverage Company, LLC as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

Tampa, Florida
August 28, 2017

 

 

 

Financial Statements

 

 

Marley Beverage Company, LLC

 

Balance Sheets

 

 

December 31,		2016				2015
Assets
Current Assets
Cash		$	10,124			$	12,181
Receivables
Trade, net of allowances of $193,321 and $169,044			202,753				218,985
Affiliates			19,587,340				18,308,873
Other			1,721				69,128
Inventories, net			1,834,759				1,227,291
Prepaid expenses and other			226,801				174,357
Total Current Assets			21,863,498				20,010,815
Property and Equipment
Computer equipment and software			68,140				117,027
Vehicles			73,000				73,000
Office Furniture and fixtures			25,647				58,761
Accumulated depreciation			(128,958	)			(155,120	)
Net Property and Equipment			37,829				93,668
Total Assets		$	21,901,327			$	20,104,483
Liabilities and Members’ Deficit
Current Liabilities
Payables
Trade		$	283,440			$	305,150
Affiliates			46,552,602				38,246,870
Accrued expenses and other			234,040				913,664
Total Current Liabilities			47,070,082				39,465,684
Loan Payable to Affiliate			21,343,611				17,306,111
Total Liabilities			68,413,693				56,771,795
Members’ Deficit
Contribution capital			1,000,000				1,000,000
Accumulated deficit			(47,512,366	)			(37,667,312	)
Total Members’ Deficit			(46,512,366	)			(36,667,312	)
Total Liabilities and Members’ Deficit		$	21,901,327			$	20,104,483

 

See independent auditor’s report and accompanying notes to financial statements.

 

 

Marley Beverage Company, LLC

 

Statements of Operations

 

Year ended December 31,		2016				2015
Net Sales		$	7,457,253			$	10,004,227
Cost of Sales			5,146,349				6,730,520
Gross Profit			2,310,904				3,273,707
Operating Expenses			8,077,064				8,821,896
Operating Loss			(5,766,160	)			(5,548,189	)
Interest Expense, Affiliate			3,987,057				3,203,167
Other Expense			91,837				309,294
Total Other Expense			4,078,894				3,512,461
Net Loss		$	(9,845,054	)		$	(9,060,650	)

 

See independent auditor’s report and accompanying notes to financial statements.

 

 

Marley Beverage Company, LLC

 

Statements of Changes in Members’ Deficit

 

		Contributed Capital				Accumulated Deficit				Total
Balance, January 1, 2015		$	1,000,000			$	(28,606,662	)		$	(27,606,662	)
Net loss			-				(9,060,650	)			(9,060,650	)
Balance, December 31, 2015		$	1,000,000			$	(37,667,312	)		$	(36,667,312	)
Net loss			-				(9,845,054	)			(9,845,054	)
Balance, December 31, 2016		$	1,000,000			$	(47,512,366	)		$	(46,512,366	)

 

See independent auditor’s report and accompanying notes to financial statements.

 

 

Marley Beverage Company, LLC

 

Statements of Cash Flows

 

Year ended December 31,		2016				2015
Operating Activities
Net loss		$	(9,845,054	)		$	(9,060,650	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization			54,961				70,180
Provision for (recovery of) bad debt			5,839				(104,359	)
Loss on disposal of fixed assets			18,933				14,784
Changes in net operating assets and liabilities
Accounts receivable, trade			10,393				367,202
Receivable, affiliate			(1,278,467	)			(2,429,395	)
Other receivable			67,407				-
Inventories			(607,468	)			137,364
Prepaid expenses and other			(52,444	)			26,399
Accounts payable, trade			(21,710	)			(262,159	)
Payable, affiliate			8,305,732				8,464,447
Accrued expenses and other			(679,624	)			456,935
Net cash used in operating activities			(4,021,502	)			(2,319,252	)
Investing Activities
Purchase of property and equipment			(18,055	)			(36,133	)
Net cash used in investing activities			(18,055	)			(36,133	)
Financing Activities
Net borrowings from affiliates			4,037,500				2,287,000
Net Decrease in Cash			(2,057	)			(68,385	)
Cash, beginning of year			12,181				80,566
Cash, end of year		$	10,124			$	12,181
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest		$	-			$	-
Income taxes		$	-			$	-

 

See independent auditor’s report and accompanying notes to financial statements.

 

 

Marley Beverage Company, LLC

 

Notes to Financial Statements

 

1.   Significant Accounting Policies

 

Nature of Business

 

Marley Beverage Company, LLC (“the Company”) develops, markets and distributes ready-to-drink relaxation and coffee beverages in the United States, Canada, Europe, Latin America and certain other foreign countries. The majority investment in the Company is held by its parent, Viva Beverages LLC (“Viva”).

 

Use of Estimates

 

In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), management is required to make estimates and assumptions that affect the reported amounts of (1) assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and (2) revenues and expenses during the reporting period. Significant areas subject to such estimates and assumptions include valuation allowances for receivables, inventories, the assessment of impairment for property and equipment and potential accruals relating to litigation and other liabilities. Actual results could differ from these estimates.

 

Concentrations of Credit Risk

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. The Company attempts to minimize credit risk by reviewing all customers’ credit history before extending credit and by monitoring customers’ credit exposure on a continuing basis. The Company had one customer individually accounting for 18% and 14% of sales in 2016 and 2015, respectively. The Company had three and four customers accounting for 83% and 71%; respectively, of accounts receivables at December 31, 2016 and 2015.

 

Cash and Cash Equivalents

 

Marketable securities with original maturities of less than three months are considered to be cash equivalents. There were no cash equivalents and there was no cash in foreign bank accounts at December 31, 2016 and 2015.

 

 

Marley Beverage Company, LLC

 

Notes to Financial Statements

 

Receivables

 

Receivables reflect balances from trade sales net of allowances for bad debt and other customer deductions. The Company records an allowance for doubtful accounts based on specifically identified customer balances that are believed to be uncollectible and an additional allowance based on certain percentages of the aged receivables, which are determined based on historical experience and a current assessment of the general financial conditions affecting the customer base. If the actual collections experience changes, revisions to the allowance may be required. Trade receivables and related allowances are written off to Operating Expenses when it is determined collection on an account is not probable. Provision for customer deductions are the best estimate of probable customer deductions related to customary trade incentives and other allowances. Customer deductions are reflected in the calculation of net sales. The allowances for bad debt and customer deductions were $5,839 and $187,482 respectively, at December 31, 2016 and $0 and $169,444, respectively, at December 31, 2015.

 

Inventories

 

Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (“FIFO”) method.

 

Property, Equipment and Depreciation

 

Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets using the straight-line method. Estimated useful lives range from 3 to 7 years. Depreciation expense was $54,961 and $70,180 for the years ended December 31, 2016 and December 31, 2015, respectively. Repair and maintenance costs are charged to Operating Expense as incurred.

 

Impairment of Long-Lived Assets

 

The Company evaluates the recoverability of property and equipment by comparing the carrying amount of the asset or group of assets against the estimated undiscounted future cash flows expected to result from the use of the asset or group of assets and their eventual disposition. If the undiscounted cash flows are less than the carrying value of the asset or group of assets being evaluated, an impairment loss is recorded. An impairment loss is measured as the difference between the fair value and carrying value of the asset or group of assets being evaluated. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less cost to sell. The estimated fair value is based on the best information available under the circumstances, including prices for similar assets or the results of valuation techniques, including the present value of expected future cash flows using a discount rate commensurate with the risks involved. There was no impairment in 2016 or 2015.

 

 

Marley Beverage Company, LLC

 

Notes to Financial Statements

 

Income Taxes

 

The Company is a limited liability company. In lieu of Federal income taxes, the members of a limited liability company are taxed on their proportional share of the Company’s taxable income. Therefore, no federal tax provision has been provided in these financial statements.

 

Revenue Recognition

 

The Company recognizes revenue on sales of its products as earned, generally when shipped and/or when title transfers to the customer. Revenue is recorded net of provisions for discounts and allowances.

 

Shipping and Handling

 

The Company classifies shipping and handling costs as Operating Expenses. The Company does not normally charge customers for shipping and handling. Shipping and handling costs paid by customers are not material and are reflected in Operating Expenses.

 

Advertising and Promotion Costs

 

The Company expenses the costs of advertising and promotion as incurred. Advertising and promotional expenses for the years ended December 31, 2016 and 2015 were $408,866 and $239,085, respectively, and reflected in Operating Expenses.

 

Fair Value of Financial Instruments

 

There is a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”). The hierarchy level assigned to financial instruments recorded at fair value is based on the Company’s assessment of the transparency and reliability of the inputs used in the valuation of such instruments at the measurement date. Level 1 inputs are based on quoted market prices. Level 2 are based on observable inputs, while Level 3 are based on unobservable inputs and management judgment. There were not any Level 2 or 3 measurements at December 31, 2016 and 2015

 

Due to their short maturity, the carrying amounts of cash, accounts receivable, accounts payable and accrued liabilities approximated their fair values at December 31, 2016 and 2015.

 

 

Marley Beverage Company, LLC

 

Notes to Financial Statements

 

2.   Inventories

 

Inventories consisted of the following:

 

December 31,		2016				2015
Finished goods		$	1,627,204			$	1,234,792
Raw materials			270,772				165,977
Other			21,518				103,586
Reserves			(84,735	)			(274,064	)
Total		$	1,834,759			$	1,227,291

 

3.   Related Party Activities

 

Under the terms of the Company’s operating agreement, the Company is charged interest by Viva on net affiliate borrowings and capital funding in excess of $1,000,000. The borrowings accrue interest at a rate of 12% per annum compounded annually with accrued and unpaid interest compounded as of June 30, 2012. Interest after June 30, 2012 is not compounded. There are no repayment terms associated with these borrowings. Net outstanding borrowings resulting from funding in excess of $1,000,000 were $35,962,044 and $28,883,776 at December 31, 2016 and 2015, respectively. The net outstanding borrowing amount as of December 31, 2016 included $14,618,433 in net affiliate payables and $21,343,611 in loans payable to Viva. The net outstanding borrowing amount as of December 31, 2015 included $11,577,664 in net affiliate payables and $17,306,112 in loans payable to Viva.

 

4.       Operating Leases

 

The Company leases office space, through an affiliate, and certain other equipment, vehicles and storage units. Rent expense was $196,706 and $246,130 for the years ended December 31, 2016 and 2015, respectively, and reflected in Operating Expenses. Future lease obligations are approximately $34,047 for 2017 and $2,901 for 2018 through 2020.

 

5. Employee Benefit Plans

 

The Company, through an affiliate allocation, maintains a 401(k) plan covering substantially all of its employees that meet minimum age and service requirements. The Company matches employee contributions at a rate of 100% up to the first 2% of compensation. Allocated contributions to the plan were $38,403 and $42,412 for the years ended December 31, 2016 and 2015, respectively, and reflected in Operating Expenses.

 

 

Marley Beverage Company, LLC

 

Notes to Financial Statements

 

6.   Employee Incentive Plans

 

In December 2013, the Company’s Board of Directors approved a resolution to adopt a unit appreciation rights plan (the “Plan”) and a grant of 1,244 units under the Plan to certain employees of the Company with a grant date of January 1, 2014. The granted units vest over three years on the anniversary grant date. Management has estimated the value of these units and determined it to be de minimis.

 

7.   Commitments and Contingencies

 

From time-to-time the Company may be involved in various claims and legal actions. Management does not expect a material adverse effect as the result of these claims.

 

8.   Guarantee

 

The Company is a co-borrower on the Fifth Third Bank Revolving Note (the “Fifth Third Note”) issued in April 2014 to Viva. Available credit under the Fifth Third Note is $3,000,000 with a principal maturity date of April 22, 2018 and interest on outstanding principal due monthly. The outstanding principal on the loan was $3,000,000 at December 31, 2016 and 2015 and Viva was current on all related interest payments. The Company may be obligated to make payments of principal and interest upon failure of Viva to make such payments when due. The maximum potential future liability of the Company related to the guarantee as of December 31, 2016 is estimated to be $2,517,900. The Company’s assets are also pledged as collateral.

 

9.   Guaranteed Minimum Payment Obligations

 

The Company has guaranteed minimum royalty and marketing obligations under a merchandise license agreement with Hope Road Merchandising, LLC. The license provides the Company with the exclusive right to use Bob Marley’s name and image in connection with its licensed products. Royalty and marketing expenses under the contract were $220,816 and $476,153 for the years ended December 31, 2016 and December 31, 2015, respectively. Future minimum obligations through the remainder of the first renewal term ending December 31, 2019, total $1,612,500. These amounts are due in stepped yearly increments ranging from $400,000 to $2,000,000. As of December 31, 2016 and 2015, $392 and $421,415 in accrued royalties, respectively, were reflected in Accrued Expenses and Other in Current Liabilities.

 

 

Marley Beverage Company, LLC

 

Notes to Financial Statements

 

10.   Subsequent Events

 

The Company has evaluated the impact of events occurring after December 31, 2016 up to August 28, 2017, the date the financial statements were available for issuance. The Company is not aware of any significant events that would have a material impact on these financial statements, except for the below.

 

On March 23, 2017, the Company entered into an asset purchase agreement (the “APA”) whereby the Company agreed to sell substantially all of its operating assets to New Age Beverages Corporation. The consideration for the Acquisition was amended pursuant to an Amendment to the APA dated June 9, 2017. The Acquisition closed on June 13, 2017.

 

At closing, the Company sold substantially all of its operating assets, consisting of inventory, accounts receivable, fixed assets and intellectual property in exchange for a purchase price of 3,000,000 shares of the common stock of New Age Beverages Corporation, as well as an earn out payment of $1,250,000 in cash if the gross revenues during any trailing twelve calendar month period after the closing are equal to or greater than $15,000,000. The sell was subject to customary closing conditions. The shares of common stock for New Age Beverages Corporation were fair valued at $6.20 per share on June 13, 2017.