NOTES
TO FINANCIAL STATEMENTS
AS
OF JUNE 30, 2017, AND DECEMBER 31, 2016
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.
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.
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.
Going
Concern
The
Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The Company has an accumulated deficit of $3,118,406. The financial statements
do not include any adjustment relating to recoverability and classification of recorded amounts of assets and liabilities that
might be necessary should the Company be unable to continue as a going concern.
The
Company's continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional
debt or equity financing. There can be no assurance the necessary debt or equity financing will be available, or will be available
on terms acceptable to the Company.
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 June 30, 2017, and December 31, 2016.
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 $16,313 at June 30,
2017 and $12,791 for December 31, 2016, 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 June 30, 2017 and December 31, 2016:
|
|
Jun 30,
|
|
|
Dec 31,
|
|
|
|
2017
|
|
|
2016
|
|
Restaurant Inventory
|
|
$
|
18,838
|
|
|
$
|
25,097
|
|
Raw materials
|
|
|
41,823
|
|
|
|
38,403
|
|
Work in process
|
|
|
28,605
|
|
|
|
46,168
|
|
Finished goods
|
|
|
194,388
|
|
|
|
128,933
|
|
Keg inventory
|
|
|
31,273
|
|
|
|
18,069
|
|
Less: reserve for obsolete inventory
|
|
|
(16,500
|
)
|
|
|
(16,500
|
)
|
|
|
|
|
|
|
|
|
|
Total Inventory
|
|
$
|
298,427
|
|
|
$
|
240,170
|
|
Prepaid
Expenses
For
the quarter ended June 30, 2017, prepaid expense consists of $2,000 for prepaid state income tax and $23,600 in prepaid rent for
a restaurant under construction. For the year ended December 31, 2016 the prepaid expense was $10,400 for prepaid state income
tax and $167 in prepaid insurance
Deposits
During
the quarter ended June 30, 2017, EBC had deposits of $114,703, consisting of short-term deposits of $47,203 and long-term deposits
of $67,500. The long-term deposit is for a can deposit of $67,500. The short-term deposits are rent of $9,200, $1,493 utility
deposits, $260 deposit with the city of Fullerton for the patio, and $250 for a software deposit. For the year ended December
31, 2016, EBC had deposits of $82,400, consisting of short-term deposits of $10,300 and long-term deposits of $72,100. This is
made up of a can deposit of $67,500 for cans all of which is long term, and deposits of $14,900 for the restaurant. One half of
the can deposit of $135,000 was returned during the year ended December 31, 2016, leaving a deposit balance of $67,500. The deposits
that make up the $14,900 are; $9,200 deposit on the building rent which $4,600 is long term, $5,190 utility deposits, $260 deposit
with the city of Fullerton for the patio, and $250 for a software deposit.
Liquor
License
With
the acquisition of the Evans Public House Restaurant the Company acquired a liquor license that it paid $50,000 for. The value
of the liquor license has increased and if the Company wanted to sell the license it could get more for it than it paid. This
is based on the fact that the Company is in the process of acquiring a liquor license for it new restaurant in Huntington Beach
that will cost over $85,000. The cost of the Liquor license for the Huntington Beach restaurant is at $84,368 as of June 30, 2017,
and has a market value of $90,000.
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 six months ended June 30, 2017, and
June 30, 2016, was $83,959 and $28,991, 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 June 30, 2017, and December 31, 2016, EBC had refundable deposits in the amounts of $113,223 and $107,567, 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 June 30, 2017 and December 31, 2016.
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 June 30, 2017, and December 31, 2016.
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 Six
months ended June 30, 2017, and for the Six months ended June 30, 2016, excise taxes amounted to approximately $47,818 and $44,669
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 2013 through 2016 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 2012 through 2016 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 2016-09 in March 2016, to provide guidance to entities that issue share-based payment awards to their employees
as part of its Simplification Initiative. The objective of the Simplification Initiative is to identify, evaluate, and improve
areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving
the usefulness of the information provided to users of financial statements. The areas for simplification in this Update were
identified through outreach for the Simplification Initiative and involve several aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification
on the statement of cash.
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 June 30, 2017, and December 31, 2016:
|
|
Mar 31,
2017
|
|
|
Dec 31,
2016
|
|
|
|
|
|
|
|
|
Brewery machinery and equipment
|
|
$
|
787,596
|
|
|
$
|
757,438
|
|
Keg asset
|
|
|
311,596
|
|
|
|
311,596
|
|
Restaurant assets
|
|
|
922,831
|
|
|
|
821,745
|
|
Software
|
|
|
4,320
|
|
|
|
4,320
|
|
Vehicles
|
|
|
63,097
|
|
|
|
63,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,089,440
|
|
|
|
1,958,196
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(813,013
|
)
|
|
|
(729,055
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
1,276,427
|
|
|
$
|
1,229,141
|
|
NOTE
4 - NOTE PAYABLE
Note
payable balance as of June 30, 2017, was $68,932 all of which is a short-term obligation. The note balance as of December 31,
2016, was $106,531, with $75,198 being the current obligation and $31,333 being the long-term obligation. The breakdown of the
notes for June 30, 2017, and December 31, 2016, is as follows:
|
|
Jun 30,
2017
|
|
|
Dec 31,
2016
|
|
Note payable for the acquisition of 4300 kegs with the monthly principal payment amount due of $6,267
|
|
$
|
68,932
|
|
|
$
|
106,531
|
|
|
|
|
|
|
|
|
|
|
Interest
expense recorded on the note for the six months ended June 30, 2017, was $2,182 compared to $4,010 for the six months ended June
30, 2016.
NOTE
5 – NOTES PAYABLE- LINE OF CREDIT
The
Company has a line of credit with City National Bank in the amount of $250,000 with a variable interest rate that was 5.25% as
of June 30, 2017. The balance on the line of credit as of June 30, 2017, was $229,041. The balance on the line of credit as of
the year ended December 31, 2016, $43,000.
NOTE
6 - 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 six months ended June 30, 2017, the Company accrued
$744 of interest on this note. For the year ended December 31, 2016, the Company had a total accrual of 1,504 on this same note,
which brings the total interest accrued on the note to $4,040 as of June 30, 2017.
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 June 30, 2017, the
Company accrued $3,529 of interest for this note. For the period ended December 31, 2016, the Company had an accrued balance of
$3,002 interest for the notes due Mr. Rapport. The total accrued interest on this note after the consolidation of the notes is
$6,532.
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 for the period ended June 30,
2017, was $694. The accrued interest on this note as of December 31, 2016, was $763.
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 June 30, 2017, the Company accrued $4,959 of interest for this note. As of the
year ended December 31, 2016, the Company accrued $4,301 of interest on this note.
On
October 1, 2016, Mr. Rapport executed a note in the amount of $400,000 with EBC Public House. The note is unsecured, and has a
one-year term and bears interest at the rate of 3% per annum. The note is an installment note to provide working capital as needed
for EBC Public House. During the six months ended June 30. 2017, EBC Public House drew done the note by $281,902 bringing the
total amount drawn on the note to $400,000. The accrued interest for the six months ended June 30, 2017, is $1,644. During the
year ended December 31, 2016, EBC Public House had 5 different draws against the note for a total of $118,098 and recorded $709
in accrued interest. The balance of the note as of June 30, 2017, is $400,000 and the total amount of accrued interest on the
note is $3,004.
On
March 2, 2017 Mr. Rapport’s loaned the Company $20,000. The note is unsecured, has a term of one year and bears interest
at the rate of 6% per annum. For the period ended June 30, 2017, the Company accrued $395 of interest for this note.
On
March 6, 2017, Mr. Rapport’s loaned the Company $120,000. The note is unsecured, has a term of one year and bears interest
at the rate of 6% per annum. For the period ended June 30, 2017, the Company accrued $2,288 of interest for this note.
On
April 1, 2017, Mr. Rapport executed a note in the amount of $85,000 with EBC Public House for the advance of funds to purchase
a Food Truck with the EBC Public House brand on it. The note has a three-year term and will be secured by the truck and bear interest
at the rate of 3% per annum. As of the six months ended June 30, 2017, EBC Public House accrued interest on the note in the amount
of $635.
On
April 1, 2017, Mr. Rapport advance EBC Public House $1,617.34 to purchase equipment for the Food Truck. The note is unsecured,
and has a one-year term and bears interest at the rate of 3% per annum. As of the six months ended June 30, 2017, EBC Public House
accrued interest on the note in the amount of $12.
On
June 26, 2017, Mr. Rapport executed a note in the amount of $250,000 with EBC Public House. The note is unsecured, and has a one-year
term and bears interest at the rate of 3% per annum. The note is an installment note to provide working capital as needed for
EBC Public House. During the six months ended June 30. 2017, EBC Public House drew done this note by $69,968. The accrued interest
on this note for the six months ended June 30, 2017, is $23.
Accrued
Interest
As
of the period ended June 30, 2017, the Company has an accrued interest balance of $29,130 for the total notes due Mr. Rapport
of $1,213,232. As of the year ended December 31, 2016, the Company had an accrued interest balance of $12,450 pertaining to notes
in the amount of $604,197.
NOTE
7 - STOCKHOLDERS’ EQUITY
Preferred
Stock
Preferred
Stock
– During the quarter ended March 31, 2017, the Company issued no shares of preferred stock. During the year ended
December 31, 2017, the Company issued 1,000,000 shares of preferred Series A stock to Michael J. Rapport on September 29, 2016,
in exchange for 100% of the outstanding shares of EBC Public House. The acquisition gives the Company its first branded restaurant
and taproom under the trade name “The Public House by Evans Brewing Company” which will feature the Company’s
beers and provides an inventive gastropub menu. The asset purchase and share exchange have been treated as business combination
as both companies are controlled by the same management. For the year ended December 31, 2016, the Company had 1,000,000 shares
of preferred shares outstanding. 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.
Common
Stock
Common
Stock
- The Company is authorized to issue 100,000,000 shares of $.0001 par value common stock. During the three months ended
March 31, 2017, the Company issued 16,803 shares of common stock to redeem shares that were cancelled in the share exchange of
December 2, 2015. These shares had been submitted for exchange at that time but were lost by the transfer agent that the Company
had at point during the exchange process. The Company also issued 10,000 for professional services, bringing the total of shares
outstanding to 4,784,293 on March 31, 2017. During the year ended December 31, 2016, the Company issued 287,600 shares for cash
and services giving a total of 4,757,463 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 year ended December 31, 2016, the Company
added 287,600 shares for cash and services, bringing the total shares outstanding as of December 31, 2016, to 4,757,463. During
the Six months ended June 30, 2017, the cancelled shares were adjusted by issuing 16,830 shares based on finding shares that had
been exchanged originally but lost in the process of the exchange. The Company also issued an additional 10,000 shares for professional
services bringing the total shares issued and outstanding to 4,784,293.
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:
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
Weighted average number of shares
|
|
|
4,777,015
|
|
|
|
4,520,745
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(556,369
|
)
|
|
$
|
(268,361
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(0.12
|
)
|
|
$
|
(0.06
|
)
|
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 June
30, 2017, and December 31, 2016.
As
of June 30, 2017, and December 31, 2016, 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 2016, the Company paid no federal income tax and received a refund in in the amount of $8,000 based
on an overpayment in 2015. The Company has a prepaid tax in the amount of $2,000 on the books from the overpayment of the 2015
state taxes. The Company has not incurred a federal tax obligation as of the period ended June 30, 2017, and EBC management expects
that the Company will not pay any federal income tax in 2017, due to its significant net operating losses.
NOTE
10 – ACQUISITION OF EVANS PUBLIC HOUSE
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., in exchange
for 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. Mr. Rapport is also the CEO of Evans Brewing Company and so the asset purchase and share exchange
have been treated as business combination as both companies are controlled by the same management.
When
Mr. Rapport originally acquired the restaurant, he incurred goodwill of $165,000. As part of the acquisition, Evans Brewing Company
wrote off the goodwill recognizing a loss of $165,000 on Evans Public House books. The note on the Evans Public House books due
to Mr. Rapport for money spent in building out the restaurant was forgiven with the offsetting entry going to additional paid
in capital in the amount of $1,173,270.
NOTE
11 – SEGMENT REPORTING
ASC
Topic 280,
Segment Reporting
, requires use of the “management approach” model for segment reporting. The
management approach model is based on the way a company’s management organizes segments within the company for making operating
decisions and assessing performance. The Company has two reportable segments: Evans brewery and malt liquor operations and Evans
Public House restaurant. The restaurant operation was just added with the acquisition of Evans Public House restaurant. Below
is a table summarizing the Company’s segment information:
|
|
For the Quarter Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Sales
|
|
|
|
|
|
|
Brewery and Malt liquor operations
|
|
$
|
835,876
|
|
|
$
|
841,224
|
|
Evans Public Restaurant
|
|
|
401,459
|
|
|
|
-
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
1,237,335
|
|
|
$
|
841,224
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
Brewery and Malt liquor operations
|
|
$
|
112,839
|
|
|
$
|
152,754
|
|
Evans Public Restaurant
|
|
|
(8,021
|
)
|
|
|
-
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
104,818
|
|
|
$
|
152,754
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
|
|
|
|
|
|
Brewery and Malt liquor operations
|
|
$
|
(169,720
|
)
|
|
$
|
(234,306
|
)
|
Evans Public Restaurant
|
|
|
(284,283
|
)
|
|
|
-
|
|
Corporate
|
|
|
(77,983
|
)
|
|
|
(25,644
|
)
|
|
|
$
|
(540,818
|
)
|
|
$
|
(259,950
|
)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Brewery and Malt liquor operations
|
|
$
|
13,160
|
|
|
$
|
4,376
|
|
Evans Public Restaurant
|
|
|
4,012
|
|
|
|
-
|
|
Corporate
|
|
|
4,273
|
|
|
|
5,056
|
|
|
|
$
|
21,444
|
|
|
$
|
9,432
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Brewery and Malt liquor operations
|
|
$
|
321
|
|
|
$
|
1,021
|
|
Evans Public Restaurant
|
|
|
-
|
|
|
|
-
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
321
|
|
|
$
|
1,021
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
Brewery and Malt liquor operations
|
|
$
|
(182,558
|
)
|
|
$
|
(237,662
|
)
|
Evans Public Restaurant
|
|
|
(289,855
|
)
|
|
|
-
|
|
Corporate
|
|
|
(83,956
|
)
|
|
|
(30,700
|
)
|
|
|
$
|
(556,369
|
)
|
|
$
|
(268,362
|
)
|
NOTE
12 - 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 six months ended June 30, 2017, and the six months ended June 30, 2016, was $46,215 and $46,756,
respectively.
Minimum
future lease payments are as follows:
2017
|
|
|
21,800
|
|
2018
|
|
|
33,889
|
|
2019
|
|
|
2,824
|
|
|
|
|
|
|
Total
|
|
$
|
57,513
|
|
With
the acquisition of EBC Public House, the Company acquired another lease. The lease for the Restaurant in Fullerton is for 5 years
with 5-year options. The lease began on August 1, 2015 and expires on July 31, 2020.
Total
lease expense paid during the six months ended June 30, 2017, and the six months ended June 30, 2016, was $27,600 and $27,600,
respectively.
Minimum
future lease payments are as follows:
2017
|
|
|
27,600
|
|
2018
|
|
|
55,200
|
|
2019
|
|
|
55,200
|
|
2020
|
|
|
32,200
|
|
|
|
|
|
|
|
|
$
|
170,200
|
|
EBC
Public House is in the process of adding another restaurant in Huntington Beach and has acquired another lease as a result. The
lease for the Restaurant in Huntington Beach is for 5 years with 5-year options. The lease began on January 1, 2017 and expires
on December 31, 2021.
Total
lease expense paid during the six months ended June 30, 2017, and the six months ended June 30, 2016, was $27,600 and $0, respectively.
Minimum
future lease payments are as follows:
2017
|
|
|
27,600
|
|
2018
|
|
|
55,200
|
|
2019
|
|
|
55,200
|
|
2020
|
|
|
55,200
|
|
2021
|
|
|
55,200
|
|
|
|
|
|
|
|
|
$
|
238,400
|
|
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:
2017
|
|
|
37,599
|
|
2018
|
|
|
31,333
|
|
|
|
|
|
|
|
|
$
|
68,932
|
|
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:
2017
|
|
|
3,681
|
|
2018
|
|
|
747
|
|
|
|
|
|
|
|
|
$
|
4,428
|
|
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
13 – 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 June 30, 2017, 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
June 30, 2017, three customers accounted for approximately 37%, 17%, and 16%, respectively, of the Company’s accounts receivable.
At December 31, 2016, three customers accounted for approximately 44%, 28%, and 9%, respectively, of the Company's accounts receivable.
Accounts
Payable
At
June 30, 2017, five vendors accounted for approximately 26%, 9%, 6%, 5% and 5%, respectively, of the Company’s accounts
payable. At December 31, 2016, five vendors accounted for approximately 32%, 12%, 7%, 6%, and 3%, respectively, of the Company's
accounts payable. For the quarter ended June 30, 2017, three vendors accounted for approximately 39%, 4% and 4% of total purchases.
For the year ended December 31, 2016, two vendors accounted for approximately 44% and 8% of total purchases.
Sales
At
June 30, 2017, four customers accounted for approximately 28%, 17%, 7%, and 4%, respectively, of the Company’s sales. For
year ended December 31, 2016, three customers accounted for approximately 34%, 25%, and 16%, respectively, of the Company's sales.
NOTE
14 - SUBSEQUENT EVENT
Subsequent
events have been evaluated through June 30, 2017, which is the date the financial statements were available to be issued.
1.
Subsequent to June 30, 2017, on July 10, 2017, Kevin Hammons resigned as Director of Brewing and resigned as a member of the board
of directors.
2. Subsequent to June 30, 2017, on August 2, 2017, Kenneth Wiedrich resigned from the board of directors.