The accompanying notes are an integral
part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2016 AND DECEMBER
31, 2015
NOTE 1 - ORGANIZATION AND DESCRIPTION
OF BUSINESS
Evans Brewing Company Inc. (formerly
ALPINE 3 Inc.) (“EBC” or the “Company”) was incorporated under the laws of the State of Delaware on June
18, 2013. Alpine 3 Inc. was set up to serve as a vehicle to effect an asset acquisition, merger, exchange of capital stock, or
other business combination with a domestic or foreign business. Alpine 3 did not undertake any effort to cause a market to develop
in its securities, either debt or equity, before it successfully concluded a business combination. On April 4, 2014, The Michael
J. Rapport Trust (the “Trust”) purchased 10,000,000 shares of common stock, which was all of the outstanding shares
of Alpine 3, from the founder of Alpine 3, and changed the name to Evans Brewing Company Inc. on May 29, 2014. On October 9, 2014,
the Trust agreed to the cancellation of 9,600,000 of the shares of common stock that it had acquired and retained 400,000 shares
of common stock.
On October 15, 2014, the Company entered
into an Asset Purchase and Share Exchange Agreement (the “Agreement”) with Bayhawk Ales, Inc., a Delaware corporation
(“Bayhawk”), subject to receiving approval of the independent Bayhawk shareholders who vote on the transaction. On
September 17, 2015, the independent Bayhawk shareholders approved the agreement by a vote of 251,212 shares for and 1,600 shares
against. As such, Bayhawk sold to EBC, and EBC purchased from Bayhawk, assets of Bayhawk, including but not limited to: (A) all
assets, including personal property, intellectual property, inventory, contracts, websites, documents, and all other assets however
delineated relating to the Bayhawk Ales label (as defined in the Agreement and discussed in more detail below); and (B) all assets,
including personal property, intellectual property, inventory, contracts, websites, documents, and all other assets however delineated
relating to the Evans Brands (as defined in the Agreement and discussed in more detail below) (collectively, the “Transferred
Assets”). Bayhawk retained ownership of 100% of the stock in Evans Brewing Co (CA) (“Evans Brewing California”)
which has the brewers license at City Brewery in Lacrosse, WI (where the non-craft brands will be brewed, with the balance of the
craft brands being brewed in Irvine, California). Based on the affirmative vote by the independent Bayhawk shareholders to approve
the Asset Purchase transaction, EBC proceeded with the share exchange and tender offer to the Bayhawk shareholders, pursuant to
which EBC offered to exchange shares of EBC common stock for shares of Bayhawk common stock, on a one-for-one basis (the “Exchange
Offer”). Bayhawk shareholders had until December 2, 2015, to tender their Bayhawk shares in the share exchange. Bayhawk shareholders
also had until December 2, 2015, to rescind the exchange of shares. There also was no minimum number of shares of Bayhawk common
stock that must be tendered for the Exchange Offer to close. At the close of the share exchange on December 2, 2015, Premier Stock
Transfer accepted on behalf of EBC 4,033,863 Bayhawk shares and issued 4,033,863 shares of EBC common stock upon the terms and
subject to the conditions set forth in the Asset Purchase and Share Exchange Agreement by and between EBC and Bayhawk, dated October
15, 2014, as amended (the “Asset Purchase Agreement”). EBC filed a copy of the Asset Purchase Agreement as an annex
to a combination registration statement and proxy statement on Form S-4. The Bayhawk shares were validly tendered pursuant to the
Exchange Offer and not withdrawn. The asset purchase and share exchange have been treated as business combination as both companies
are controlled by the same management.
The brewery continued to operate under
the Bayhawk Ales, Inc. name as it transitioned the licensing and branding over to Evans Brewing Company, Inc. That process has
been completed and all future activities will be under the Evans Brewing Company banner. Bayhawk Ales Inc. will be dissolved and
all of its history will become that of Evans Brewing Company, Inc.
Evans Brewing Company is a craft brewery
based on Orange County, California that produces and sells premium craft beers, including a variety of ales and lagers. EBC’s
beers are currently produced in its 17-barrel brewery in Irvine, California, the oldest continuously operating brewing facility
in Orange County and one of the oldest in all of Southern California. This facility has been producing craft beers since January
1995.
EBC products include four beers that
are packaged year-round (Pollen Nation Honey Blonde Ale, The KrHOPen India Pale Ale, Oaklore Brown Ale, and ChocōLatté
Chocolate Porter), various draft-only offerings (which include The Joaquin Dead Mexican Red Ale, OC Pale Ale, Son of a Beach Blonde
Ale), and seasonal beers (which include Approachable Bastard Session IPA, Stout at the Devil Russian Imperial Stout, crHOP Dust
Hefeweizen, and Oktoberfest). EBC’s labels for its year round packaging were approved in 2016 and the beers are currently
being sold with these labels. EBC has the exclusive rights to make, manufacture, produce, market, sell, and distribute original
beers, lagers, and ales known as Evans Lager Original, Evans Lager Black, Evans Lager Light, Bad Kat Ice, and Dead Presidents.
EBC also owns the assets of Pig’s Eye Brewing Company, LLC, (the “EBC Malt Assets”) including the intellectual
property and trademarks relating to original beers, lagers, and ales, including Milwaukee Select and Pig’s Eye (the “EBC
Malt Brands”). EBC’s products are distributed to restaurants and other retail outlets in nine states. EBC also produces
and packages kegged beer on a private label basis for restaurants and other customers, with the names for such products determined
collaboratively with such customer and each product co-branded with the phrase “by Evans Brewing Company”.
In addition to manufacturing and selling
the products above, EBC also produces and packages beers for other craft breweries in Southern California on a contract-basis.
Further, in addition to beer production and sales generally, EBC also produces and offers for sale certain “Evans Brewing
Company” branded merchandise including apparel, glassware and other beer accessories.
On September 29, 2016, Evans Brewing
Company, Inc., closed the acquisition of a restaurant business located in the downtown SOCO District of Fullerton, California,
through the acquisition of all the outstanding stock of EBC Public House, Inc., which the Company now operates as its first branded
restaurant and taproom under the trade name “The Public House by Evans Brewing Company”. The Public House features
the Company’s beers – as well as beers from other selected local Orange County, California breweries, -- food and,
potentially, occasional entertainment.
In connection with such closing, the
Company acquired 100% of the outstanding shares of EBC Public House from Mr. Rapport and issued 1,000,000 shares of the Company’s
Series A Preferred Stock to Mr. Rapport. The asset purchase and share exchange have been treated as business combination as both
companies are controlled by the same management.
In connection with the closing of the transactions, the Company
and Michael J. Rapport also entered into an Indemnification Agreement for Closing Date Liabilities (the “Indemnification
Agreement”) pursuant to which Mr. Rapport agreed to indemnify the Company for liabilities accrued as of the closing.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
This summary of accounting policies
for EBC is presented to assist in understanding the Company’s financial statements. The Company uses the accrual basis of
accounting and accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been
consistently applied in the preparation of the financial statements.
Use of Estimates and Assumptions
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of
the financial statements. Actual results could differ from those estimates. Estimates are used when accounting for allowances for
bad debts, collectability of accounts receivable, amounts due to service providers, depreciation and litigation contingencies,
among others.
Cash and Cash Equivalents
For purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents
to the extent the funds are not being held for investment purposes. The Company has no cash equivalents as of September 30, 2016
and December 31, 2015.
Accounts Receivable
Accounts receivable are customer obligations
due under normal trade terms. EBC performs continuing credit evaluations of customers and allowances are maintained for potential
credit losses. EBC determined an allowance for doubtful accounts of $12,791at September 30, 2016 and for December 31, 2015, to
be appropriate.
Inventories
Inventories are valued at the lower
of cost or market. EBC regularly reviews its inventories for the presence of obsolete product attributed to age, seasonality, and
quality and reduces its cost basis when its review indicates a reduction in utility below the inventory's carrying value. Inventories
consisted of the following at September 30, 2016 and December 31, 2015:
|
|
Sep 30,
|
|
|
Dec 31,
|
|
|
|
2016
|
|
|
2015
|
|
Raw materials
|
|
$
|
40,563
|
|
|
$
|
43,117
|
|
Work in process
|
|
|
53,080
|
|
|
|
36,861
|
|
Finished goods
|
|
|
165,039
|
|
|
|
92,790
|
|
Restaurant inventory
|
|
|
18,749
|
|
|
|
-
|
|
Packaging
|
|
|
16,163
|
|
|
|
-
|
|
Keg inventory
|
|
|
18,875
|
|
|
|
22,546
|
|
Less: reserve for obsolete inventory
|
|
|
(16,500
|
)
|
|
|
(16,500
|
)
|
|
|
|
|
|
|
|
|
|
Total Inventory
|
|
$
|
295,969
|
|
|
$
|
178,814
|
|
Deposits
During the quarter ended September 30,
2016, EBC had a return on can deposit of $67,500 from a third-party that cans its product, reducing the original deposit of $135,000
in half for a deposit balance of $67,500 as of the quarter ended September 30, 2016. As of December 31, 2015, The can deposit was
$135,000.
Property and Equipment
Property and equipment are stated at
cost. Depreciation is computed by using the straight-line method over the estimated useful lives:
Building improvements
|
|
20 years
|
Leasehold improvements
|
|
10 years
|
Brewery equipment
|
|
3 - 20 years
|
Furniture and fixtures
|
|
5 years
|
Software
|
|
3 years
|
Vehicles
|
|
5 - 10 years
|
EBC capitalizes significant capital
expenditures. Ordinary maintenance and repairs are charged to operations as expenses when incurred. When assets are sold or retired,
the costs and related accumulated depreciation and amortization are removed from the accounts, and any resulting gain or loss
is included in the income. Total depreciation expense for the nine months ended September 30, 2016 and September 30, 2015, was
$50,708 and $58,749, respectively.
Impairment of long-lived assets
EBC evaluates its long-lived assets
by measuring the carrying amount of the asset against the estimated undiscounted future cash flows associated with them. At the
time such evaluations indicate that the future undiscounted cash flows of certain long lived assets are not sufficient to recover
the carrying value of such assets, the assets are adjusted to their fair values. No adjustment to the carrying value of the assets
has been made.
Accounts Payable
Accounts payable consists of unpaid
expenses incurred in the normal course of business.
Refundable deposits
EBC distributes its draft beer in kegs
that are owned by the Company. When a draft beer is shipped to the customer, the Company collects a refundable deposit and records
a liability. Upon return of the keg, the deposit is refunded to the customer and the liability is reduced. As of September 30,
2016 and December 31, 2015, EBC had refundable deposits in the amounts of $102,746 and $107,574, respectively. EBC accounts for
the loss, breakage, and deterioration of the kegs by crediting the customer’s deposits. The deposit approximates EBC’s
cost of the keg. Any additional cost incurred for the loss, breakage, or deterioration of the kegs is then billed to the customer.
Management periodically reviews its refundable deposits for any loss allowance on loss, breakage, or deterioration and has determined
that no allowance was necessary as of September 30, 2016 and December 31, 2015.
Revenue Recognition
Revenue from product sales, are recognized
when the products are picked up by individual customers or shipped to wholesale customers. The following criteria are met before
revenue is recognized: persuasive evidence of an arrangement exists, shipment of product or pickup has occurred, selling price
is fixed or determinable and collection is reasonably assured. Product returns are allowed, but are rare according to historical
records for past years. EBC continuously monitors and evaluates product returns. There was no allowance for product returns as
of September 30, 2016, and December 31, 2015.
Sales Tax
EBC excludes from its sales all sales
taxes assessed to its customers. Sales taxes assessed are recorded as accrued liabilities on the balance sheet until remitted to
the state agencies.
Excise Tax
The federal government levies excise
taxes on the sale of alcoholic beverages, including beer. For brewers producing fewer than two million barrels of beer per calendar
year, the federal excise tax is $7 per barrel on the first 60,000 barrels of beer removed for consumption or sale during the calendar
year. The state of California imposes excise taxes on the sale and distribution of beer at a rate of $0.20 per gallon. Excise taxes
due to federal and state agencies are not collected from customers. For the nine months ended September 30, 2016 and for the nine
months ended September 30, 2015, excise taxes amounted to approximately $90,914 and $68,307 respectively, which is treated as a
Cost of Goods sold.
Uncertain Tax Positions
EBC utilizes the asset and liability
method of accounting for income taxes in accordance with the provisions of the “Expenses – Income Taxes Topic”
of the FASB ASC. Under the asset and liability method, deferred income tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. The Company considers certain tax planning strategies in its assessment as to
the recoverability of its tax assets. Deferred income tax assets and liabilities are measured using enacted tax rates in effect
for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets
and liabilities of a change in tax rates is recognized in earnings in the period that the tax rate changes. EBC recognizes, in
its financial statements, the impact of a tax position, if that position is more likely than not to be sustained on audit, based
on technical merits of the position. There are no material unrecognized tax positions in the financial statements.
EBC accounts for uncertain tax positions
in accordance with FASB ASC 740 (formerly Financial Accounting Standards Boards Interpretation No. 48,
Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement No. 109
). FASB ASC 740 prescribes a recognition threshold and measurement
process for financial statement recognition of uncertain tax positions taken or expected to be taken in a tax return. The interpretation
also provides guidance on recognition, derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. The Company adopted the provisions of FASB ASC 740 and there was no impact on total liabilities or stockholder's
equity as a result of the adoption of FASB ASC 740.
For federal tax purposes the Company’s
2012 through 2015 tax years remain open for examination by the tax authorities under normal three-year statute of limitations.
Generally, for state tax purposes, the Company’s 2011 through 2015 tax years remain open for examination by the tax authorities
under a four-year statute of limitations.
Fair Value of Financial Instruments
Fair value of certain of the Company’s
financial instruments including cash, account payable, accrued expenses, notes payables, and other accrued liabilities approximate
cost because of their short maturities. The Company measures and reports fair value in accordance with ASC 820, “Fair Value
Measurements and Disclosures” which defines fair value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles and expands disclosures about fair value investments.
Fair value, as defined in ASC 820, is
the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or
most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the
risk of nonperformance, which includes, among other things, the Company’s credit risk.
Valuation techniques are generally classified
into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or
more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability,
and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use
of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting
measurement as follows:
Level 1: Quoted prices (unadjusted)
in active markets that are accessible at the measurement date 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;
inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or
corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: Unobservable inputs for the
asset or liability that are supported by little or no market activity and that are significant to the fair values.
Fair value measurements are required
to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair
value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements
including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to
the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in
earnings, and a description of where those gains or losses included in earning are reported in the statement of income.
Basic Loss Per Share
Basic income (loss) per share is calculated
by dividing the Company's net loss applicable to common shareholders by the weighted average number of common shares during the
period. Diluted earnings per share is calculated by dividing the Company's net income (loss) available to common shareholders by
the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding
is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.
The Company has no dilutive debt instruments.
New Authoritative Accounting Guidance
The FASB issued ASU 2015-11 in July,
2015, to provide guidance on how an entity should measure inventory within the scope of this Update at the lower of cost and net
realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable
costs of completion, disposal, and transportation. The amendments in this Update more closely align the measurement of inventory
in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). For public business entities,
the amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within
those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December
15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments in this Update should be applied
prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.
The Financial Accounting Standards Board
(FASB) issued Accounting Standard Update (ASU) 2014-15 on August 27, 2014, providing guidance on determining when and how to disclose
going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments
of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An
entity must provide certain disclosures if “conditions or events raise substantial doubt about [the] entity’s ability
to continue as a going concern.” The ASU applies to all entities and is effective for annual periods ending after December
15, 2016, and interim periods thereafter, with early adoption permitted.
The Company
has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact
on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting
pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September
30, 2016 and December 31, 2015:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Brewery machinery and equipment
|
|
$
|
756,912
|
|
|
$
|
731,883
|
|
Keg asset
|
|
|
311,596
|
|
|
|
311,596
|
|
Restaurant assets
|
|
|
802,953
|
|
|
|
-
|
|
Office equipment
|
|
|
525
|
|
|
|
-
|
|
Software
|
|
|
4,320
|
|
|
|
4,320
|
|
Vehicles
|
|
|
63,097
|
|
|
|
59,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,1939,402
|
|
|
|
1,107,198
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(688,866
|
)
|
|
|
(638,159
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
1,250,536
|
|
|
$
|
469,039
|
|
NOTE 4 - NOTE PAYABLE
Note payable balance as of September
30, 2016, was $133,308 with $79,870 being the current amount due and $53,438 being the long term obligation. The note balance as
of December 31, 2015, was $181,892, with $75,199 being the current obligation and $106,693 being the long term obligation. The
breakdown of the notes for September 30, 2016, and December 31, 2015, is as follows:
|
|
2016
|
|
|
2015
|
|
Note payable for the acquisition of 4300 kegs with the monthly principal payment amount due of $6,267
|
|
$
|
133,308
|
|
|
$
|
181,892
|
|
Interest expense recorded on the note for the nine months ended September 30, 2016 was $8,435 compared
to $3,717 for the nine months ended September 30, 2015.
NOTE 5 - NOTES PAYABLE- RELATED PARTY
On July 21, 2014, Michael J. Rapport
the Chief Executive Officer, sole director and controlling shareholder of the Company, advanced the Company a $100,000 long term
unsecured loan with a 1.5% interest rate per annum, due no later than July 21, 2017. The loan is convertible into common shares
of the Company at any time after the second year’s anniversary at a price based upon either: a) The price of its most recent
private placement offering, closest to the time of conversion, b) If publicly-traded, then the bid price of its common stock on
the closing day of the conversion. For the nine months ended September 30, 2016, the Company accrued $1,126 of interest on this
note. For the year ended December 31, 2015, the Company had a total accrual of 2,170 on this same note, which brings the total
interest accrued on the note to $3,296 as of September 30, 2016
Michael J. Rapport also advanced the
Company $10,000 on April 21, 2014; $8,000 on June 13, 2014; $20,000 on June 2, 2015; $30,000 on July 2, 2015; and $40,000 on August
25, 2015, for a total amount advanced of $108,000. All of these payments are secured by 8% interest bearing notes that are due
on April 21, 2015, June 13, 2015, June 2, 2016, July 2, 2016, and August 25, 2016, respectively. As of June 30, 2016, four of the
five notes totaling $108,000 were past due. On July 30, 2016, Michael J. Rapport exchanged the 5 notes, 4 of which were past due,
for a single note. The 5 notes total $108,000 and are replaced by a single note for $118,603, which includes the original principal
of $108,000 plus $10,603 of accrued interest. The new note has a term of one year and will bear interest at per annum rate of 6%
instead of the 8% per annum rate on the old notes. For the period ended September 30, 2016, the Company accrued $1,209 of interest
for this note. For the period ended December 31, 2015, the Company had an accrued balance of $5,584 interest for the notes due
Mr. Rapport. The total accrued interest on this note after the consolidation of the notes is $1,209.
In addition to these notes Michael J.
Rapport also paid for a new piece of equipment for the brewery on June 15, 2016, in the amount of $17,496. A separate 8% interest
bearing note was drawn up for this amount and accrued interest in the amount of $410 has been recorded as of the period ending
September 30, 2016.
On July 27, 2016, Mr. Rapport’s
loaned the Company $250,000. The note is unsecured, has a term of one year and bears interest at the rate of 4% per annum. For
the period ended September 30, 2016, the Company accrued $1,781 of interest for this note.
Accrued Interest
For the nine months ended September
30, 2016, the Company has an accrued interest balance of $6,286 for the total notes due Mr. Rapport of $486,099. For the year ended
December 31, 2015, the Company had an accrued interest balance of $7,754 pertaining to notes in the amount of $208,000.
NOTE 6 - RELATED PARTY TRANSACTIONS
During the nine months ended September
30, 2016, the Company issued a note in the amount of $17,496 to Michael J. Rapport for equipment that he purchased for the brewery.
This amount added to the existing notes of $468,603 held by Mr. Rapport brings the principal amount owed to $486,099. For the period
ended December 31, 2015, the amount due Mr. Rapport for the outstanding notes was $208,000.
NOTE 7 - STOCKHOLDERS’ EQUITY
Preferred Stock
Preferred Stock
– As of
June 30, 2016, the Company is authorized to issue 10,000,000 shares of Preferred stock. The Company issued 1,000,000 shares of
preferred Series A stock to Michael J. Rapport on September 29, 2016, in exchange for all of the outstanding shares of EBC Public
House. During the fiscal year ended December 31, 2015, the Company amended the certificate of incorporation authorizing the Company
to issue 10,000,000 shares of $.0001 par value preferred stock. No shares of preferred stock were issued as of December 31, 2015.
Common Stock
Common Stock
- The Company is
authorized to issue 100,000,000 shares of $.0001 par value common stock. During the nine months ended September 30, 2016, the Company
issued 277,000 shares as compensation and 25,000 shares to Kodiak for cash plus had a share adjustment of 600 shares bringing the
total of shares outstanding to 4,772,463 on September 30, 2016. The 600 share adjustment was made to bring the Company total in
line with the executed share exchange. As of December 31, 2015, there were 4,469,863 shares issued and outstanding.
Upon formation of the Company on June
18, 2013, the Board of Directors issued 10,000,000 shares of common stock for $1,000 in services to the founding shareholder of
the Company. In addition, the founding shareholder made a contribution of $3,050 in 2014 to the Company, which was recorded as
additional paid-in capital.
On April 4 2014, the founding shareholder
entered into a Share Purchase Agreement pursuant to which he sold an aggregate of 10,000,000 shares of EBC’s common stock
to The Michael J. Rapport Trust (the “Trust”) for a purchase price of $40,000. Pursuant to the Share Purchase Agreement,
The Trust became the sole shareholder of EBC, owning 100% of the issued and outstanding shares of EBC’s common stock. On
September 22, 2014, the Company cancelled 9,600,000 shares of common stock for no consideration. On September 23, 2014, the Company
issued 6,000 shares of common stock to directors of the Company for services valued at $600 ($0.10 per share). On September 23,
2014, the Company issued 30,000 shares of common stock for services to Tech Associates Inc., a company controlled by Richard Chiang,
a director of the Company, valued at $3,000 ($0.10 per share) bringing the total shares outstanding to 436,000 shares of common.
Based on the completion of the asset
purchase agreement and share exchange agreement by and between EBC and Bayhawk, on December 2, 2015, Premier Stock Transfer accepted
on behalf of EBC 4,033,863 Bayhawk shares and issued 4,033,863 shares of EBC common stock upon the terms and subject to the conditions
set forth in the Asset Purchase and Share Exchange Agreement by and between EBC and Bayhawk, dated October 15, 2014, as amended
(the “Asset Purchase Agreement”). EBC filed a copy of the Asset Purchase Agreement as an annex to a combination registration
statement and proxy statement on Form S-4. The Bayhawk shares were validly tendered pursuant to the Exchange Offer and not withdrawn.
The 4,033,863 shares exchanged per the
agreement along with the 436,000 shares that Evans Brewing Company held brought the total outstanding to 4,469,863 as of December
31, 2015. Bayhawk had a total of 4,884,624 shares of its common stock outstanding as of December 31, 2014, and as of the closing
of the Share Exchange, but 414,761 shares were not tendered in the Share Exchange, so the total shares outstanding shares of EBC
common stock at December 31, 2015, was 4,469,863. During the nine months ended September 30, 2016, an additional 257,600 shares
were issued as compensation and 25,000 shares were issued for cash bringing the current total to 4,752,463 shares of common stock
outstanding.
NOTE 8 - EARNINGS PER SHARE
Basic net income (loss) per share was
computed using the weighted-average number of shares of common stock outstanding during the period. The following summarized the
earnings per share:
|
|
Sep 30,
2016
|
|
|
Sep 30,
2015
|
|
Weighted average number of shares
|
|
|
4,590,833
|
|
|
|
4,448,624
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(699,534
|
)
|
|
$
|
(167,321
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(0.15
|
)
|
|
$
|
(0.04
|
)
|
NOTE 9 - INCOME TAXES
Deferred income taxes are provided for
the temporary differences between the carrying values of the Company’s assets and liabilities for financial reporting purposes
and their corresponding income tax basis. The temporary differences give rise to either a deferred tax asset or liability in the
consolidated financial statements, which is computed by applying current statutory tax rates to taxable and deductible temporary
differences based upon the classification (i.e. current or non-current) of the asset or liability in the consolidated financial
statements which relates to the particular temporary difference. Deferred taxes related to differences which are not attributable
to a specific asset or liability are classified in accordance with the future period in which they are expected to reverse and
be recognized for income tax purposes. The long-term deferred tax assets are fully valued as of September 30, 2016, and December
31, 2015.
As of September 30, 2016, and December
31, 2015, the components of the Company’s deferred tax assets and liabilities primarily consist of temporary differences
attributable to differing methods of depreciation, insurance claim receivables, net operating losses, allowances for obsolete inventory,
and reserves for bad debt.
EBC’s management used 34% to calculate
the deferred tax assets and the current tax provision. Because of the startup costs of EBC and the net operating losses earned
by Bayhawk during the first few years in operation, the Company has had to pay very little federal income tax. In 2015 the
Company paid no federal income tax but did pay $13,995 in State taxes. The Company has filed its 2015 return and will receive a
refund of $10,400. The Company has booked a prepaid expense in the amount of $10,400 to account for this. The Company has not incurred
a federal tax obligation as of the period ended September 30, 2016 and EBC management expects that the Company will not pay any
federal income tax in 2016, due to its significant net operating losses.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company operates out of three buildings
in Irvine, California, and Santa Ana, California, under non-cancelable leases expiring between July 31, 2017, and January 31, 2019.
Total lease expense paid during the
quarter ended September 30, 2016, and the quarter ended September 30, 2015, was $90,432 and $83,161, respectively.
Minimum future lease payments are as
follows:
2016
|
|
|
20,730
|
|
2017
|
|
|
62,491
|
|
2018
|
|
|
33,889
|
|
2019
|
|
|
2,824
|
|
|
|
|
|
|
|
|
$
|
119,934
|
|
With the acquisition of EBC Public
House, the Company acquired another lease. The lease for the Restaurant is for 5 years with 5 year options. The leas began on August
1, 2015and expires on July 31, 2020.
Total lease expense paid during the
quarter ended September 30, 2016, and the quarter ended September 30, 2015, was $$41,400 and $9,200, respectively.
Minimum future lease payments are as
follows:
2016
|
|
|
13,800
|
|
2017
|
|
|
55,200
|
|
2018
|
|
|
55,200
|
|
2019
|
|
|
55,200
|
|
2020
|
|
|
32,200
|
|
|
|
|
|
|
|
|
$
|
211,600
|
|
Notes payable commitment:
The Company purchased 4300 kegs that it had previously leased
on a note payable with City National Bank.
Minimum future payments for keg assets note are as follows:
2016
|
|
|
19,022
|
|
2017
|
|
|
75,199
|
|
2018
|
|
|
31,333
|
|
|
|
|
|
|
|
|
$
|
125,554
|
|
The Company purchased a truck for the business that was financed
through an auto loan with Ford Motors financing.
Minimum future payments for the auto loan are as follows:
2016
|
|
|
2,336
|
|
2017
|
|
|
4,672
|
|
2018
|
|
|
747
|
|
|
|
|
|
|
|
|
$
|
7,755
|
|
Litigation
The Company may be subject to legal
proceedings and claims which arise in the ordinary course of business. In the opinion of Company Management the ultimate outcome
of the claims and litigation, if any, will not have a material adverse effect on the Company’s financial position.
NOTE 11 - CONCENTRATIONS
Cash
The Company maintains cash balances
at financial institutions insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures cash balances up to $250,000
per institution. As of September 30, 2016, the Company had no bank account that exceeded the insured amount. The Company normally
has no problem with uninsured balances as its deposits are separated across financial institutions.
Accounts Receivable
At September 30, 2016, three customers
accounted for approximately 50%, 22%, and 18%, respectively, of the Company’s accounts receivable. At December 31, 2015,
three customers accounted for approximately 54%, 16%, and 12%, respectively, of the Company's accounts receivable.
Accounts Payable
At September 30, 2016, two vendors accounted
for approximately 70%, and 14%, respectively, of the Company’s accounts payable. At December 31, 2015, three vendors accounted
for approximately 57%, 9% and 6%, respectively, of the Company's accounts payable. For the period ending September 30, 2016, two
vendors accounted for approximately 49% and 9% of total purchases. For the year ended December 31, 201, two vendors accounted for
approximately 69% and 13% of total purchases.
Sales
At September 30, 2016, three customers
accounted for approximately 39%, 23%, and 15%, respectively, of the Company’s sales. For year ended December 31, 2015, three
customers accounted for approximately 34%, 25%, and 16%, respectively, of the Company's sales.
NOTE 12 - SUBSEQUENT EVENT
Subsequent events have been evaluated
through August 15, 2016, which is the date the financial statements were available to be issued.
1.
|
Subsequent to the quarter ended September 30, 2016, Evans Brewing Company’s FORM S-1 registration statement previously filed by the Company, wherein the Company registered 425,000 shares of Common Stock pursuant to the terms of the Equity Purchase Agreement with Kodiak Capital Group, LLC, became effective on October 25, 2016.
|