Blockchain saves the day for iced-tea company facing Nasdaq boot

Monday
Jan 8, 2018 at 1:30 PM

Lily Katz - Bloomberg

For years, the owners of an unprofitable iced-tea company watched their stock tumble. Last month, they saw it almost triple in a day after a simple name change, and the timing couldn't have been more convenient.

Long Island Iced Tea Corp., now called Long Blockchain Corp., received an ultimatum from Nasdaq in October, when the exchange threatened to delist it unless the market value rose above $35 million for 10 business days in a row. It achieved that on Friday, flaunting one of the hottest buzzwords of the year to get there.

When the Farmingdale, New York-based beverage business changed its name on Dec. 21, its market capitalization soared to almost $70 million. It has stayed above the $35 million threshold since then. The shares closed at $5.04 on Friday, the same day the company said it was buying 1,000 bitcoin-mining machines and offering as many as 1.6 million shares. The purchase may not go through if Long Blockchain doesn't get enough funding, it said in a filing Friday.

Long Island Iced Tea wasn't the first to use blockchain as an antidote for lackluster stock returns. Cigar manufacturers and sports-bra companies have cashed in on the market's love affair for cryptocurrencies and their underlying technology. What's unique about the iced-tea maker is its biggest shareholder's connections to an odd assortment of companies and characters, including one of Robert Kennedy's daughters, model Heidi Klum and struggling retailer American Apparel Inc.

There were reasons for the stock to languish before the name change. The company has posted consecutive quarterly losses for years, including a $3.9 million deficit in the third quarter. Two customers made up 42 percent of its $1.6 million in net sales during that period.

In a November filing, the company conceded its financial reporting has "material weaknesses." Its staff is too small to segregate key roles such as authorizing, carrying out and reviewing transactions, it said. And it isn't always able to quickly and fully scrutinize information used for disclosures.

"Our management has relatively little experience in the blockchain technology industry," the company said in the Friday filing. It also warned investors that while its exposure to bitcoin could boost the stock in the near term, this may "change over time."

Devin Sullivan, a spokesman for Long Blockchain, declined to comment beyond the firm's public statements and said the company is in a quiet period until after it closes the financing announced last week. Long Blockchain Chief Executive Officer Philip Thomas said last month that the decision to pivot to blockchain technology was "a once-in-a-generation opportunity."

Long Blockchain's story began in October 2007, when a blank-check company called Triplecrown Acquisition Corp. raised $550 million in an initial public offering. Started by longtime business partners Eric Watson and Jonathan Ledecky, who worked together to take American Apparel public, Triplecrown was formed to acquire or merge with a financial-services business.

Blank-check firms, also known as special-purpose acquisition companies or SPACs, are shell companies that sell shares to the public to finance an acquisition that the executives haven't yet identified. Triplecrown merged with Watson's dairy-farming business, Cullen Agricultural Technologies Inc., in 2009, after asking shareholders for approval because the target business wasn't a financial firm. The new stock began trading as Cullen Agricultural Holding Corp. Six years later, it combined with Long Island Brand Beverages and became Long Island Iced Tea.

Watson, a New Zealander known for lavish parties and dating supermodels, is Long Blockchain's top shareholder, according to data compiled by Bloomberg. He has an 18 percent stake, a filing on Friday shows. He runs Cullen Investments, a majority shareholder in Bendon Ltd., which features Klum as the face of one of its lingerie brands and has held talks to merge with fashion company Naked Brand Group Inc.

Cullen Investments also owns the New Zealand Warriors rugby team, according to the firm's website. Watson recently sold his 92-acre Auckland estate, which boasts a six-bedroom villa, a polo field, a helicopter pad, a nine-hole golf course and a herd of alpacas.

Watson didn't respond to an email seeking comment, and no one answered calls to either of the phone numbers on the website of Cullen Investments. Klum also didn't respond to an email.

Watson got in trouble with the Securities and Exchange Commission in 2001 for neglecting to disclose that he and associates had purchased more than two million shares of a business-supply firm that his company, Blue Star Group Ltd., had been in talks to buy. He ultimately settled with the SEC after the regulator said he had defrauded investors, though he didn't admit or deny the agency's findings.

Watson was a leading shareholder in Hanover Finance Ltd., once one of the largest New Zealand non-bank lenders. The firm failed in the wake of the 2008 U.S. housing market crash, owing investors more than $400 million at the time. Shortly after the collapse, Watson reportedly threw a $650,000 birthday party in Turkey.

Ledecky, the majority owner of the New York Islanders hockey team, worked with Watson to start Endeavor Acquisition Corp., a blank-check company that in 2006 agreed to buy American Apparel. Prior to that deal, the two had formed more than 25 companies and worked on 400 related acquisitions, according to a government filing. After a number of business failures and millions of dollars of investor losses, Ledecky in 2006 told the Washington Post he had turned a new leaf, taking up Bible study and donating almost $10 million to charity.

Ledecky declined to comment for this story, as did Nasdaq.

Kerry Kennedy, the daughter of assassinated senator Robert Kennedy and ex-wife of New York Gov. Andrew Cuomo, has been a director of at least four blank-check companies started by Watson and Ledecky. She resigned from the board of Long Island Iced Tea in September, citing other business obligations, according to a government filing. Kennedy is president of Robert F. Kennedy Human Rights, a nonprofit that advocates for social justice. The organization didn't respond to requests for an interview with Kennedy.

When Long Island Iced Tea announced its shift to blockchain, it disclosed a $2 million line of credit from Court Cavendish Ltd., a U.K.-based turnaround firm run by Chai Patel, who has held leadership roles at several British health-care companies. Patel was accused of professional misconduct for alleged abusive treatment at one of his care facilities but later cleared of wrongdoing. Long Blockchain appointed two Court Cavendish-nominated directors to its board on Jan. 1.

Monday
Jan 8, 2018 at 1:30 PM

Lily Katz - Bloomberg

For years, the owners of an unprofitable iced-tea company watched their stock tumble. Last month, they saw it almost triple in a day after a simple name change, and the timing couldn't have been more convenient.

Long Island Iced Tea Corp., now called Long Blockchain Corp., received an ultimatum from Nasdaq in October, when the exchange threatened to delist it unless the market value rose above $35 million for 10 business days in a row. It achieved that on Friday, flaunting one of the hottest buzzwords of the year to get there.

When the Farmingdale, New York-based beverage business changed its name on Dec. 21, its market capitalization soared to almost $70 million. It has stayed above the $35 million threshold since then. The shares closed at $5.04 on Friday, the same day the company said it was buying 1,000 bitcoin-mining machines and offering as many as 1.6 million shares. The purchase may not go through if Long Blockchain doesn't get enough funding, it said in a filing Friday.

Long Island Iced Tea wasn't the first to use blockchain as an antidote for lackluster stock returns. Cigar manufacturers and sports-bra companies have cashed in on the market's love affair for cryptocurrencies and their underlying technology. What's unique about the iced-tea maker is its biggest shareholder's connections to an odd assortment of companies and characters, including one of Robert Kennedy's daughters, model Heidi Klum and struggling retailer American Apparel Inc.

There were reasons for the stock to languish before the name change. The company has posted consecutive quarterly losses for years, including a $3.9 million deficit in the third quarter. Two customers made up 42 percent of its $1.6 million in net sales during that period.

In a November filing, the company conceded its financial reporting has "material weaknesses." Its staff is too small to segregate key roles such as authorizing, carrying out and reviewing transactions, it said. And it isn't always able to quickly and fully scrutinize information used for disclosures.

"Our management has relatively little experience in the blockchain technology industry," the company said in the Friday filing. It also warned investors that while its exposure to bitcoin could boost the stock in the near term, this may "change over time."

Devin Sullivan, a spokesman for Long Blockchain, declined to comment beyond the firm's public statements and said the company is in a quiet period until after it closes the financing announced last week. Long Blockchain Chief Executive Officer Philip Thomas said last month that the decision to pivot to blockchain technology was "a once-in-a-generation opportunity."

Long Blockchain's story began in October 2007, when a blank-check company called Triplecrown Acquisition Corp. raised $550 million in an initial public offering. Started by longtime business partners Eric Watson and Jonathan Ledecky, who worked together to take American Apparel public, Triplecrown was formed to acquire or merge with a financial-services business.

Blank-check firms, also known as special-purpose acquisition companies or SPACs, are shell companies that sell shares to the public to finance an acquisition that the executives haven't yet identified. Triplecrown merged with Watson's dairy-farming business, Cullen Agricultural Technologies Inc., in 2009, after asking shareholders for approval because the target business wasn't a financial firm. The new stock began trading as Cullen Agricultural Holding Corp. Six years later, it combined with Long Island Brand Beverages and became Long Island Iced Tea.

Watson, a New Zealander known for lavish parties and dating supermodels, is Long Blockchain's top shareholder, according to data compiled by Bloomberg. He has an 18 percent stake, a filing on Friday shows. He runs Cullen Investments, a majority shareholder in Bendon Ltd., which features Klum as the face of one of its lingerie brands and has held talks to merge with fashion company Naked Brand Group Inc.

Cullen Investments also owns the New Zealand Warriors rugby team, according to the firm's website. Watson recently sold his 92-acre Auckland estate, which boasts a six-bedroom villa, a polo field, a helicopter pad, a nine-hole golf course and a herd of alpacas.

Watson didn't respond to an email seeking comment, and no one answered calls to either of the phone numbers on the website of Cullen Investments. Klum also didn't respond to an email.

Watson got in trouble with the Securities and Exchange Commission in 2001 for neglecting to disclose that he and associates had purchased more than two million shares of a business-supply firm that his company, Blue Star Group Ltd., had been in talks to buy. He ultimately settled with the SEC after the regulator said he had defrauded investors, though he didn't admit or deny the agency's findings.

Watson was a leading shareholder in Hanover Finance Ltd., once one of the largest New Zealand non-bank lenders. The firm failed in the wake of the 2008 U.S. housing market crash, owing investors more than $400 million at the time. Shortly after the collapse, Watson reportedly threw a $650,000 birthday party in Turkey.

Ledecky, the majority owner of the New York Islanders hockey team, worked with Watson to start Endeavor Acquisition Corp., a blank-check company that in 2006 agreed to buy American Apparel. Prior to that deal, the two had formed more than 25 companies and worked on 400 related acquisitions, according to a government filing. After a number of business failures and millions of dollars of investor losses, Ledecky in 2006 told the Washington Post he had turned a new leaf, taking up Bible study and donating almost $10 million to charity.

Ledecky declined to comment for this story, as did Nasdaq.

Kerry Kennedy, the daughter of assassinated senator Robert Kennedy and ex-wife of New York Gov. Andrew Cuomo, has been a director of at least four blank-check companies started by Watson and Ledecky. She resigned from the board of Long Island Iced Tea in September, citing other business obligations, according to a government filing. Kennedy is president of Robert F. Kennedy Human Rights, a nonprofit that advocates for social justice. The organization didn't respond to requests for an interview with Kennedy.

When Long Island Iced Tea announced its shift to blockchain, it disclosed a $2 million line of credit from Court Cavendish Ltd., a U.K.-based turnaround firm run by Chai Patel, who has held leadership roles at several British health-care companies. Patel was accused of professional misconduct for alleged abusive treatment at one of his care facilities but later cleared of wrongdoing. Long Blockchain appointed two Court Cavendish-nominated directors to its board on Jan. 1.

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