PART
I
Special
Note Regarding Forward-Looking Statements
Information
included or incorporated by reference in this Annual Report on Form 10-K contains forward-looking statements. All forward-looking
statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future
performance of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only
predictions and speak only as of the date hereof. Forward-looking statements may contain the words “believes,” “project,”
“expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “strategy,”
“plan,” “may,” “will,” “would,” “will be,” “will continue,”
“will likely result,” and similar expressions, and are subject to numerous known and unknown risks and uncertainties.
Additionally, statements relating to implementation of business strategy, future financial performance, acquisition strategies,
capital raising transactions, performance of contractual obligations, and similar statements may contain forward-looking statements.
In evaluating such statements, prospective investors and shareholders should carefully review various risks and uncertainties
identified in this Report, including the matters set forth under the captions “Risk Factors” and in the Company’s
other SEC filings. These risks and uncertainties could cause the Company’s actual results to differ materially from those
indicated in the forward-looking statements. The Company disclaims any obligation to update or publicly announce revisions to
any forward-looking statements to reflect future events or developments.
Although
forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements
can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject
to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in or
anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes
include, without limitation, those specifically addressed under the heading “Risk Factors Related to Our Business”
below, as well as those discussed elsewhere in this Annual Report on Form 10-K. Readers are urged not to place undue reliance
on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We file reports with
the Securities and Exchange Commission (“SEC”). You can read and copy any materials we file with the SEC at the SEC’s
Public Reference Room, 100 F. Street, NE, Washington, D.C. 20549. You can obtain additional information about the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov)
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with
the SEC, including us.
We
disclaim any obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that
may arise after the date of this Annual Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures
made throughout the entirety of this Annual Report, which attempt to advise interested parties of the risks and factors that may
affect our business, financial condition, results of operations and prospects.
Corporate
Overview and History of Evans Brewing Company, Inc. (Formerly ALPINE 3, Inc.).
Evans
Brewing Company, Inc. (formerly ALPINE 3 Inc.) 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, Inc., and subsequently changed
the name to Evans Brewing Company Inc. (“EBC”) 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, Bayhawk and EBC entered into an Asset Purchase and Share Exchange Agreement (the “Agreement”), subject
to receiving approval of the independent Bayhawk shareholders who voted 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 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 will be treated as business combination as both
companies are controlled by the same management.
Overview
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. The brewery is located in a leased building in the McCormick & Schmick’s
Seafood Restaurant.
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.
Background
EBC
and Bayhawk filed a registration statement on Form S-4 with the U.S. Securities and Exchange Commission (the “Registration
Statement”), which went effective on August 10, 2015. The Registration Statement included a proxy statement seeking the
votes of the Bayhawk shareholders on the Asset Purchase Transaction by written consent. On September 17, 2015, the voting period
closed, and EBC announced that approximately 99% of the shares that were voted had voted in favor of the Asset Purchase Transaction.
In
connection with the Asset Purchase Transaction, EBC and Bayhawk entered into a General Assignment and Bill of Sale agreement (the
“Bill of Sale”) which outlined the specific assets purchased, as well as an Assignment and Assumption of Liabilities
agreement (the “Assumption Agreement) which outlined the specific liabilities of Bayhawk assumed by EBC.
In
connection with the closing of the Asset Purchase Transaction and the entry into the Bill of Sale and the Assumption Agreement,
EBC acquired the assets (other than the ownership of Evans Brewing California), the liabilities, and the operations of Bayhawk.
As such, on December 10, 2015, in connection with this acquisition, EBC ceased to be a shell company as defined in Rule 12b-2,
in that it had assets consisting of more than cash and cash equivalents, and has a business plan and operations.
Bayhawk
Ales
Bayhawk
Ales, Inc. (formerly Orange County Brewing Company) (“Bayhawk”) was formed in February 1994 for the purpose of developing
and operating one or more breweries in California for the production of high quality, hand-crafted ales for sale in bottle and
draft. The Company built a 17-barrel showcase brewery (the "Southern California Brewery") in a leased building in the
McCormick & Schmick’s Seafood Restaurant in Irvine, California. The Southern California Brewery, located in the central
business district of Irvine near John Wayne International Airport, began brewing beer in January 1995. Irvine is south of Los
Angeles and is adjacent to Newport Beach. It is a suburban city of the greater Los Angeles metropolitan area and the location
of numerous businesses. At the time of the construction of the Southern California Brewery, the Los Angeles metropolitan area
was the largest single market for beer in the United States. The products produced by Bayhawk are 90% private labeled. The business
has only recently in the last few years become profitable.
Evans
Brewing Company, Inc. (Formerly ALPINE 3, Inc.) was incorporated in Delaware in June 18
th
, 2013 with a fiscal year
ending on December 31st.
Evans
Brewing Company, Inc., acquired 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 restaurant was acquired from Michael
J Rapport and it features the Company’s beers, as well as beers from other selected local Orange County, California breweries,
food and occasional entertainment. The Restaurant is the first in a chain of restaurants to be added by the Company.
Principal
Products
EBC
products include four packaged year-round beers: Pollen Nation Honey Blonde Ale, The KrHOPen India Pale Ale, Oaklore Brown Ale,
and ChocōLatté Chocolate Porter; draft-only offerings include The Joaquin Dead Mexican Red Ale, OC Pale Ale, Son of
a Beach Blonde Ale; and seasonals include Approachable Bastard Session IPA, Stout at the Devil Russian Imperial Stout, crHOP Dust
Hefeweizen, and Oktoberfest.
EBC
also produces malt liquor at a third party site in Lacrosse, Wisconsin. By way of background, in August 2013, Evans Brewing California
had acquired from City Brewing Company, LLC (“City Brewing”) the assets of Pig’s Eye Brewing Company, LLC, (the
“Pig’s Eye Assets”) including the intellectual property and trademarks relating to original beers, lagers, and
ales, including Milwaukee Select and Pig’s Eye (the “Pig’s Eye Brands”). Additionally, Evans Brewing California
had 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.
With
the opening of the Company’s first branded restaurant and taproom, The Public House by Evans Brewing Company, in the last
quarter of 2016, the Company sells food as well as its core beer products.
Seasonality
of Business
EBC
products are sold throughout the year with the summer and fall seasons of the year providing the largest volume of sales. With
the opening of the Company’s first branded restaurant and taproom, The Public House by Evans Brewing Company, in the last
quarter of 2016 and additional distribution in year-round retail outlets, the Company anticipates an increase in sales in the
winter and spring seasons to even out sales volume throughout the year.
Employees
As
of the date of this Report, EBC has eleven full time and twenty nine part time employees.
RECENT
DEVELOPMENTS
Closing
of Asset Purchase Transaction
On
December 10, 2015, EBC completed the previously announced acquisition of the assets and liabilities of Bayhawk, pursuant to an
Asset Purchase and Share Exchange Agreement between EBC and Bayhawk, dated October 15, 2014 (subsequently amended and restated
on August 6, 2015 (as amended, the “Agreement”)).
Pursuant
to the Agreement, Bayhawk had agreed to sell, and EBC had agreed to purchase, substantially all of Bayhawk’s assets, as
well as its liabilities (collectively, the “Asset Purchase Transaction”). The assets and liabilities of Bayhawk include
personal property, intellectual property, inventory, selected distribution contracts, websites, documents, and all other assets
however delineated relating to the Bayhawk Ales labels; and (B) all assets, including personal property, intellectual property,
inventory, contracts, websites, documents, and all other assets however delineated relating to the Evans Brands (collectively,
the “Transferred Assets”), and the assumption by EBC, pursuant to the terms and conditions set forth in the Agreement,
of all of the liabilities of Bayhawk (the “Assumed Liabilities”). (The “Evans Brands” include the former
assets of Pig’s Eye Brewing Company, including its original beers, lagers and ales (“Pig’s Eye Brands”),
as well as Evans Lager Original, Evans Lager Black, Evans Lager Light, Bad Kat Ice, and Dead Presidents.) Pursuant to the Agreement,
EBC has the right to purchase from Bayhawk 100% ownership in Evans Brewing California.
Pursuant
to the Agreement, EBC and Bayhawk agreed to seek approval of the shareholders of Bayhawk relating to the Asset Purchase Transaction.
Because the principal majority stockholders of Bayhawk are also significant stockholders of EBC, Bayhawk and EBC agreed to proceed
with the Asset Purchase Transaction if it was approved by the holders of at least a majority of the Independent Shares (i.e. shares
not held by Bayhawk’s majority shareholder, The Michael J. Rapport Trust, or by Evan Rapport, who is an officer of EBC and
the son of Michael Rapport) that actually vote on the Asset Purchase Transaction proposal.
EBC
and Bayhawk filed a registration statement on Form S-4 with the U.S. Securities and Exchange Commission (the “Registration
Statement”), which went effective on August 10, 2015. The Registration Statement included a proxy statement seeking the
votes of the Bayhawk shareholders on the Asset Purchase Transaction by written consent. On September 17, 2015, the voting period
closed, and EBC announced that approximately 99% of the shares that were voted had voted in favor of the Asset Purchase Transaction.
In
connection with the Asset Purchase Transaction, EBC and Bayhawk entered into a General Assignment and Bill of Sale agreement (the
“Bill of Sale”) which outlined the specific assets purchased, as well as an Assignment and Assumption of Liabilities
agreement (the “Assumption Agreement) which outlined the specific liabilities of Bayhawk assumed by EBC.
Equipment
Lease to Bayhawk
Following
the closing of the Asset Purchase Transaction, EBC entered into an equipment lease (the “Equipment Lease”) with Bayhawk
pursuant to which EBC leased the brewing equipment to Bayhawk. The Equipment Lease was effective as of December 1, 2015, and continues
month to month. Bayhawk agreed to pay a minimum of $15,000 per month or net profits from operations, whichever is greater. The
title to the leased equipment will remain with EBC, and EBC has the right to inspect the equipment and its usage.
The
foregoing summaries of the terms and conditions of the Bill of Sale, the Assumption Agreement, and the Equipment Lease (collectively,
the “Ancillary Agreements”) do not purport to be complete, and are qualified in their entirety by reference to the
full text of the specific Ancillary Agreement, each of which was attached as an exhibit to a Current Report on Form 8-K, filed
by EBC on December 15, 2015.
Effective
September, 2016 the Bayhawk name was dissolved and all operations are now under the name of Evans Brewing Company, Inc and the
lease is no longer needed.
Change
in Shell Company Status
In
connection with the closing of the Asset Purchase Transaction and the entry into the Bill of Sale and the Assumption Agreement,
EBC acquired the assets (other than the ownership of Evans Brewing California), the liabilities, and the operations of Bayhawk.
As such, on December 10, 2015, in connection with this acquisition, EBC ceased to be a shell company as defined in Rule 12b-2,
in that it has assets consisting of more than cash and cash equivalents, and has a business plan and operations.
Share
Exchange
As
discussed in more detail above and below in this Annual Report, as partial consideration for the purchase of the Transferred Assets
and the assumption of the Assumed Liabilities, EBC agreed to offer to exchange shares of EBC common stock for all shares of Bayhawk
common stock that were tendered in connection with such offer, the transaction being referred to as the “Share Exchange.”
The ratio of the share exchange is one (1) share of EBC common stock for each one (1) share of Bayhawk common stock.
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 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 will be treated as business combination as both companies are controlled by the same management.
No
Change of Control
In
connection with the Asset Purchase Transaction, and the share exchange for the restaurant, there was no change in control of EBC.
The officers and directors of EBC did not change, and the majority ownership of EBC did not change.
As
noted, prior to the closing of the Share Exchange, there was no way to determine how many shares of Bayhawk common stock will
be exchanged for shares of EBC common stock. Nevertheless, Michael J. Rapport owns, through The Michael J. Rapport Trust, a majority
of the outstanding common stock of both EBC and Bayhawk. As such, following the closing of the Share Exchange, Mr. Rapport continued
to own a majority of the common stock of EBC, and as such, there was no change in control of EBC.
Public
House Stock Purchase Agreement
On
September 29, 2016, 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 close of the restaurant was based on the agreement
entered into on December 10, 2015, wherein, EBC entered into a Stock Purchase Agreement (the “Public House SPA”) with
Michael J. Rapport, as the sole shareholder of EBC Public House, Inc., a California corporation (“Public House”),
for the purchase by EBC of 100% of the outstanding shares of Public House from Mr. Rapport, with the transaction closing on September
29, 2016.
By
way of background, Mr. Rapport formed Public House to purchase a restaurant business located in Fullerton, California (previously
operated as Steamers Jazz Club). At the completion of the renovation and remodel of the restaurant on September 29,2016, the agreement
was closed. Mr. Rapport was the sole shareholder of Public House.
Pursuant
to the Public House SPA, EBC agreed to issue 1,000,000 shares of its Series A Preferred Stock (see description below) in exchange
for 100% of the outstanding stock of Public House (the “Public House Shares”).
- Other
standard closing conditions.
The
foregoing summary of the terms and conditions of the Public House SPA does not purport to be complete, and is qualified in its
entirety by reference to the full text of the Public House SPA, was attached as an exhibit to a Current Report on Form 8-K, filed
by EBC on December 15, 2015.
Certificate
of Designation – Series A Convertible Preferred Stock
In
connection with the Public House SPA, on December 10, 2015, the Company’s Board of Directors approved and adopted a Certificate
of Designation of Rights and Preferences for Series A Convertible Preferred Stock (the “Certificate of Designation”).
On December 11, 2015, the Company filed with the State of Delaware the Certificate of Designation, which became part of the Company’s
Certificate of Incorporation, as amended to date.
Pursuant
to the Certificate of Designation, the Company is authorized to issue up to 2,000,000 shares of the Company’s Series A Convertible
Preferred Stock (the “Preferred Stock”). As noted above, the Company agreed to issue 1,000,000 shares of the Preferred
Stock to Mr. Rapport upon the closing of the purchase of the Public House Shares. The rights and preferences of the Preferred
Stock include the following:
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Stated
Value: The Preferred Stock has a stated value (the “Stated Value”) of $1.00 per share.
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Dividends:
Holders of the Preferred Stock are entitled to receive dividends equal to five percent (5%) per annum, payable quarterly in
arrears. The dividends may be paid in cash or shares of the Company’s common stock, at the option of the holder.
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Voting
Rights: The holder of the Preferred Stock has the right to one vote for each share of common stock into which the Preferred
Stock could be converted.
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Conversion:
The Preferred Stock is convertible at the option of the holder into shares of the Company’s common stock. The number
of shares of common stock issuable upon conversion shall be determined by dividing the number of shares of Preferred Stock
by the applicable Conversion Price, which is defined as follows:
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If
the Common Stock of the Company has been listed for trading on a public exchange or trading facility, the conversion price
for each share of Preferred Stock on any conversion date shall be the lower of (I) seventy percent (70%) of the two (2) lowest
closing bid prices over the sixty trading days prior to the conversion date, or (II) the Stated Value of the Preferred Stock.
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If
the Common Stock of the Company is not trading on the conversion date, the conversion price shall be the Stated Value of the
Preferred Stock.
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Redemption:
The Company has the obligation to redeem the unconverted shares of Preferred Stock from the holder as follows:
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The
Company shall have the obligation, as set forth herein, to redeem the unconverted shares of the Preferred Stock at a price
equal to the Redemption Price (defined below) as follows:
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The
Company shall pay to the holder of the Preferred Stock, on a quarterly basis, within thirty (30) days of the end of each fiscal
quarter, an amount equal to twenty percent (20%) of the excess revenues, as determined by the Board of Directors on a quarterly
basis, to redeem shares of Preferred Stock.
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The
Company shall also pay to the holder of the Preferred Stock, an amount equal to 20% of any capital raised by the Company in
connection with offerings of the Company’s securities (whether private offerings or public offerings), within ten (10)
days of the closing of each such offering, to redeem shares of Preferred Stock.
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The
“Redemption Price” shall be equal to the Stated Value of such shares of Preferred Stock, plus all accrued and
unpaid dividends on the shares to be redeemed.
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Liquidation:
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”),
the holders of the Preferred Stock shall be entitled to receive out of the assets of the Company, whether such assets are
capital or surplus, for each share of Preferred Stock an amount equal to the Stated Value plus all accrued but unpaid dividends
per share, and all other amounts in respect thereof then due and payable before any distribution or payment shall be made
to the holders of any Junior Securities.
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EBC
issued 1,000,000 shares of Preferred Stock in connection with the purchase of the Public House Shares, upon closing of the transaction,
which occurred on September 29, 2016, without registration under the securities Act of 1933 (the “1933 Act”) in reliance
on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.
The
foregoing summary of the terms and conditions of the Certificate of Designation does not purport to be complete, and is qualified
in its entirety by reference to the full text of the Certificate of Designation, was attached as an exhibit to a Current Report
on Form 8-K, filed by EBC on December 15, 2015.
Because
of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past
financial performance should not be considered to be a reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.
You
should carefully consider the risks described below together with all of the other information included in this report before
making an investment decision with regard to our securities. The statements contained in or incorporated herein that
are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results
to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually
occurs, our business, financial condition or results of operations could be harmed. In that case, you may lose all or part of
your investment.
RISKS
ASSOCIATED WITH OUR COMPANY:
We
are an “emerging growth company,” and the reduced disclosure requirements applicable to “emerging growth companies”
could make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act. For as long as we are an emerging growth company, we
may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that
are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements
of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports
and proxy statements and exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation
and shareholder advisory votes on golden parachute compensation. We will remain an “emerging growth company” until
the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more;
(ii) the last date of the fiscal year following the fifth anniversary of the date of the first sale of common stock under the
current registration (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible
debt; and (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. We will be
deemed a large accelerated filer on the first day of the fiscal year after the market value of our common equity held by non-affiliates
exceeds $700 million, measured on October 31.
We
cannot predict if investors will find our common stock less attractive to the extent we rely on the exemptions available to emerging
growth companies. If some investors find our common stock less attractive as a result, there may be a less active trading market
for our common stock and our stock price may be more volatile.
In
addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging
growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to
private companies.
A
Company that elects to be treated as an emerging growth company shall continue to be deemed an emerging growth company until the
earliest of (i) the last day of the fiscal year during which it had total annual gross revenues of $1,000,000,000 (as indexed
for inflation), (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of common stock
under the current registration; (iii) the date on which it has, during the previous 3-year period, issued more than $1,000,000,000
in non-convertible debt; or (iv) the date on which is deemed to be a ‘large accelerated filer’ as defined by the SEC,
which would generally occur upon it attaining a public float of at least $700 million.
We
have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2)
of the Jobs Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates
for public and private companies until those standards apply to private companies. As a result of this election, our financial
statements may not be comparable to companies that comply with public company effective dates.
Management
of EBC cannot guarantee that EBC will generate revenues which could result in a total loss of the value of your investment if
it is unsuccessful in its business plans.
While
Evans Brewing California, a California corporation which is a separate entity from EBC, and Bayhawk have generated revenues during
their history, which are reported in the financial statements included in this current annual report, there can be no assurance
that EBC will continue to generate revenues or that revenues will be sufficient to maintain its business following the Asset Purchase
Transaction. As a result, you could lose all of your investment if EBC is not successful in its proposed business plans.
EBC’s
needs could exceed the amount of time or level of experience our officers and directors may have. EBC will be dependent
on key executives, and the loss of the services of the current officers and directors could severely impact EBC’s business
operations.
EBC’s
business plan does not provide for the hiring of any additional employees other than outlined in its plan of operations until
sales will support the expense. Until that time the responsibility of developing EBC’s business, the offering
and selling of the shares based on current filings and the reporting requirements of a public company will fall upon the two officers
and the directors. In the event they are unable to fulfill any aspect of their duties to EBC, it may experience a shortfall
or complete lack of sales resulting in little or no profits and eventual closure of our business.
Additionally,
the management of future growth will require, among other things, continued development of EBC’s financial and management
controls and management information systems, stringent control of costs, increased marketing activities, and the ability to attract
and retain qualified management, research, and marketing personnel. The loss of key executives or the failure
to hire qualified replacement personnel would compromise EBC’s ability to generate revenues or otherwise have a material
adverse effect on EBC. There can be no assurance that EBC will be able to successfully attract and retain skilled
and experienced personnel but every effort will be made to do so.
As
of the date of this current annual report, Evans Brewing California had been operated previously as a private company. Additionally,
Bayhawk previously filed public reports with the SEC, but ceased making the required filings in 1999. Current management of both
of these entities has limited experience in complying with public company reporting and other obligations. Taking steps to comply
with these requirements will increase our costs and require additional management resources, and does not ensure that we will
be able to satisfy them.
Prior
to the transactions described in this Annual Report, the operations of Evans Brewing California were conducted as a private company.
Additionally, Bayhawk previously operated as a public company, and filed reports with the SEC. However, under prior management,
Bayhawk ceased making the required filings in 1999, and has not filed any required public reports since 1999. Current
Bayhawk management was not involved in the determination in 1999 to cease making the required filings, and has not filed periodic
reports on behalf of Bayhawk since becoming involved with Bayhawk. (Bayhawk’s filing history is discussed in more detail
below.) Upon the closing of the Asset Purchase Transaction, assuming the Bayhawk shareholders provide the required approval, EBC
will acquire the assets and liabilities of Bayhawk (including the assets of Evans Brewing Calfornia), and EBC will become the
operating company. EBC is a public reporting company. As a public company commencing commercial operations, we will
be required to comply with applicable provisions of the Sarbanes-Oxley Act of 2002, as well as other federal securities laws,
and rules and regulations promulgated by the SEC and the various exchanges and trading facilities where our common stock may trade,
which will result in significant initial and continuing legal, accounting, administrative and other costs and expenses. These
rules and requirements impose certain corporate governance requirements relating to director independence, filing and distributing
annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest, and codes
of conduct, depending on where our shares trade. Our management and other personnel will need to devote a substantial amount of
time to ensure that we comply with all applicable requirements.
As
we review our internal controls and procedures, we may determine that they are ineffective or have material weaknesses, which
could impact the market’s acceptance of our filings and financial statements.
EBC’s
annual report for 2014 was the first time EBC’s management was required to provide a report on its internal controls and
procedures, including the internal controls over financial reporting, although management has conducted reviews of such internal
controls and procedures in connection with the preparation and filing of its prior quarterly reports. As EBC continues as a publicly
reporting company, EBC management will be required to continue to review our internal control over financial reporting for the
purpose of providing the reports required by the SEC’s rules. As the Company grows, following the closing of the Asset Purchase
Transaction (assuming Bayhawk shareholder approval is obtained), and during the course of our ongoing reviews and testing, we
may identify deficiencies or our controls and procedures may no longer be deemed to be effective. Furthermore, if we have a material
weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements
may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing
basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors
to lose confidence in our reported financial information and cause the trading price of our stock to fall. In addition, as a public
company we are required to file in a timely manner accurate quarterly and annual reports with the SEC under the Securities Exchange
Act of 1934 (the “Exchange Act”), as amended. Any failure to report our financial results on an accurate
and timely basis could result in sanctions, lawsuits, delisting of our shares from the market or trading facility where our shares
may trade, or other adverse consequences that would materially harm our business.
Because
EBC has shown a net loss since inception, ownership of EBC shares could result in a complete loss of the value of your investment
if EBC is unsuccessful in its business plans.
Based
upon current plans, EBC expects to incur operating losses in future periods as it incurs significant expenses associated with
the growth of its business. Further, there is no guarantee that it will be successful in realizing future revenues
or in achieving or sustaining positive cash flow at any time in the future. Any such failure could result in the possible
closure of its business or force EBC to seek additional capital through loans or additional sales of its equity securities to
continue business operations, which would dilute the value of any shares you purchase in this offering.
Growth
and development of operations will depend on the acceptance of EBC’s proposed business. If EBC’s products
are not deemed desirable and suitable for purchase and it cannot establish a customer base, it may not be able to generate future
revenues, which would result in a failure of the business and a loss of the value of your investment.
The
acceptance of EBC’s brewing products for its customers is critically important to its success. EBC cannot be certain that
the services that it will be offering will be appealing and as a result there may not be any demand for these products and its
sales could be limited and it may never realize any revenues. In addition, there are no assurances that if it alters or changes
the products it offers in the future that the demand for these new products will develop and this could adversely affect our business
and any possible revenues.
If
demand for the products EBC plans to offer slows, then its business would be materially affected, which could result in the loss
of your entire investment of EBC’s common stock.
Demand
for products which we intend to sell depends on many factors, including:
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the
number of customers EBC is able to attract and retain over time.
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the
economy, and in periods of rapidly declining economic conditions, customers may defer products such as ours in order to pay
secured debts or debts that must be paid in order to remain solvent.
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the
competitive environment in the micro-brewery market may force it to reduce prices below its desired pricing level or increase
promotional spending.
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the
ability to anticipate changes in consumer preferences and to meet customers’ needs in a timely cost effective manner.
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For
the long term, demand for the products we plan to offer may be affected by:
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the
ability to establish, maintain and eventually grow market share in a competitive environment.
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delivery
of its information globally, geopolitical changes, changes in liquor regulations, currency fluctuations, natural disasters,
pandemics and other factors beyond our control may increase the cost of items it purchases, create communication issues or
render product delivery difficult which could have a material adverse effect on its sales and profitability.
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All
of these factors could result in immediate and longer term declines in the demand for the products it plans to offer, which could
adversely affect its sales, cash flows and overall financial condition.
EBC
has limited management resources, and will be dependent on key executives. The loss of the services of the current officers and
directors could severely impact EBC’s business operations and future development, which could result in a loss of revenues
and adversely impact the ability to ever sell any shares owned.
EBC
is relying on a small number of key individuals to implement its business and operations and, in particular, the professional
expertise and services of Michael J. Rapport, our President, Chief Executive Officer, Secretary, and Chairman of the Board of
Directors; Kenneth Wiedrich, our Chief Financial Officer; and Evan Rapport, our Vice President and a member of the Board of Directors.
Accordingly, EBC may not have sufficient managerial resources to successfully manage the increased business activity envisioned
by its business strategy. In addition, EBC's future success depends in large part on the continued service of Mr. Michael
Rapport and Mr. Evan Rapport. EBC has not entered into an employment agreement with Michael Rapport, and has an employment
agreement with Evan Rapport that runs for three years. If either of these persons chooses not to serve as officers or if they
are unable to perform their duties, this could have an adverse effect on Company business operations, financial condition and
operating results if it is unable to replace them with other individuals qualified to develop and market its business. The
loss of their services could result in a loss of revenues, which could result in a reduction of the value of any stock owned.
EBC’s
industry requires attracting and retaining talented employees, and the inability to retain such talented employees could result
in the loss of the value of your investment.
Success
in the microbrew industry does and will continue to require the acquisition and retention of highly talented and experienced individuals. Due
to the growth in the market segment targeted, such individuals and the talent and experience they possess is in high demand. There
is no guarantee that we will be able to attract and maintain access to such individuals. If we fail to attract, train,
motivate and retain talented personnel, our business, financial condition, and operating results may be materially and adversely
impacted, which could result in the loss of your entire investment.
The
speculative nature of our business could result in unpredictable results and a loss of the value of your investment.
The
microbrewery and beer brewing industry is extremely competitive and the commercial success of any product is often dependent on
factors beyond our control, including but not limited to market acceptance and retailers' prominently shelving and selling our
products. We may experience substantial cost overruns in manufacturing and marketing our products, and may not have
sufficient capital to successfully complete any of our projects. We may also incur uninsured losses for liabilities
which arise in the ordinary course of business in the manufacturing industry, or which are unforeseen, including but not limited
to trademark infringement, product liability, and employment liability.
Competition
that EBC faces is varied and strong.
EBC’s
products and industry as a whole are subject to extreme competition. There is no guarantee that we can sustain our
market position or expand our business. We anticipate that the intensity of competition in the future will increase.
We
compete with a number of entities in providing products to our customers. Such competitor entities include: (1) a variety
of large nationwide corporations, including but not limited to public entities and companies that have established loyal customer
bases over several decades; (2) local breweries and microbreweries that have the same or a similar business plan as we do; and
(3) a variety of other local and national breweries and with which we either currently or may, in the future, compete.
Many
of our current and potential competitors are well established and have longer operating histories, significantly greater financial
and operational resources, and name recognition than we have. As a result, these competitors may have greater credibility
with both existing and potential customers. They also may be able to offer more competitive products and services and
more aggressively promote and sell their products. Our competitors may also be able to support more aggressive pricing
than we will be able to, which could adversely affect sales, cause us to decrease our prices to remain competitive, or otherwise
reduce the overall gross profit earned on our products.
Additionally,
our third party providers themselves are subject to the intensely competitive market. We rely on such providers for
underlying services and products that enable and/or facilitate the creation of our products. Competition or grain shortages
may affect our suppliers’ ability to innovate and to continue existing product and service offerings, which could result
in the loss of the value of your entire investment.
Our
success in business and operations will depend on general economic conditions.
The
success of EBC depends, to a large extent, on certain economic factors that are beyond its control. Factors such as
general economic conditions, levels of unemployment, interest rates, tax rates at all levels of government, competition and other
factors beyond EBC’s control may have an adverse effect on EBC’s ability to sell its products and to collect sums
due and owing to it.
Changes
in consumer preferences and discretionary spending may have a material adverse effect on our revenue, results of operations and
financial condition.
Our
success depends, in part, upon the popularity of our products and our ability to organically develop new brands or acquire the
licensing or distribution rights to existing brands that appeal to consumers. Shifts in consumer preferences away from
our products, our inability to develop new products that appeal to consumers, or changes in our product mix that eliminate items
popular with some consumers could harm our business. Also, our success depends to a significant extent on discretionary
consumer spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly,
we may experience declines in revenue during economic downturns or during periods of uncertainty. Any material decline
in the amount of discretionary spending could have a material adverse effect on our sales, results of operations, business and
financial condition.
EBC
may not be able to successfully implement its business strategy, which could adversely affect its business, financial condition,
results of operations and cash flows. If EBC cannot successfully implement its business strategy, it could result in
the loss of the value of your investment.
Successful
implementation of its business strategy depends on factors specific to the liquor industry and micro-breweries specifically, and
the state of the financial industry and numerous other factors that may be beyond its control. Adverse changes in the
following factors could undermine our business strategy and have a material adverse effect on its business, its financial condition,
and results of operations and cash flow:
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The
competitive environment in the micro-brew industry that may force us to reduce prices below the optimal pricing level or increase
promotional spending;
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Its
ability to anticipate changes in consumer preferences and to meet customers’ needs for our products in a timely cost
effective manner; and
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Its
ability to establish, maintain and eventually grow market share in a competitive environment.
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There
are no substantial barriers to entry into the industry, and because EBC has only limited copyright protection for the products
it intends to sell, there is no guarantee someone else will not duplicate its ideas and bring them to market before it does, which
could severely limit EBC’s sales and revenues. If EBC cannot generate sales and revenues, it could result
in the loss of the value of your investment.
Because
EBC has limited copyright and trademark protection, unauthorized persons may attempt to copy aspects of EBC’s business,
including its product design or functionality, services or marketing materials. Any encroachment upon EBC’s corporate information,
including the unauthorized use of its brand names, the use of a similar name by a competing company, or a lawsuit initiated against
EBC for infringement upon another company's proprietary information or improper use of their copyright, may affect its ability
to create brand name recognition, cause customer confusion and/or have a detrimental effect on its business. Litigation
or proceedings before the U.S. or International Patent and Trademark Offices may be necessary in the future to enforce EBC’s
intellectual property rights, to protect its trade secrets and domain name and/or to determine the validity and scope of the proprietary
rights of others. Any such infringement, litigation or adverse proceeding could result in substantial costs and diversion
of resources and could seriously harm its business operations and/or results of operations. As a result, an investment
in the Company could result in the loss of the entire investment.
Failure
of third-party distributors upon which we rely could adversely affect our business and result in the loss of your investment
.
Like
most craft brewers, EBC plans to rely heavily on third party distributors for the sale of their products to retailers. The
loss of a significant distributor could have a material adverse effect on EBC’s business, financial condition and results
of operations. EBC’s distributors often represent competing specialty beer brands, as well as national beer brands,
and are to varying degrees influenced by their continued business relationships with other brewers. EBC’s independent
distributors may be influenced by a large brewer if they rely on that brewer for a significant portion of their sales. While
we believe that the relationships between EBC and its distributors are generally good, many of these relationships are relatively
new and untested and there can be no assurance that EBC’s distributors will continue to effectively market and distribute
EBC’s beer. The loss of any distributor or the inability to replace a poorly performing distributor in a timely
fashion could have a material adverse effect on the business, financial condition and results of operations of EBC. Furthermore,
no assurance can be given that EBC will successfully attract new distributors as they increase their presence in their existing
markets or expand into new markets.
We
likely will have limited market for the acquired brands in a concentrated geographic area.
Bayhawk
Ales primarily has sold its products through different distributors across California, as well as through Prestige Imports, Mt
Clemens, MI, which represents the Bayhawk products nationally. There is no assurance that Bayhawk’s brands will
be as widely accepted, or that consumers in new geographic markets will be receptive to Bayhawks’s products. Management
believes that California and Private Label Sales are likely to continue to be the largest market for its brands, and that regional
identification may assist EBC’s competitors in other regions. Penetration of other regional markets is an important element
of EBC’s expansion plan, and failure to accomplish this objective will hinder the success of the expansion plan and could
have a material adverse impact on EBC’s business, financial condition, and results of operations.
EBC
depends on a limited number of suppliers; cost and availability of raw materials.
EBC
relies upon a limited number of suppliers for raw materials used to make and package EBC’s products, including, but not
limited to, providers of hops, grains and other products necessary for us to manufacture our product. EBC’s success
will depend in part upon our ability to successfully secure such materials from suppliers that are delivered with consistency
and at a quality that meets our requirements. The price and availability of these materials are subject to market conditions. Increases
in the price of our products due to the increase in the cost of raw materials could have a negative effect on our business.
If
EBC is unable to obtain sufficient quantities or other raw materials, delays or reductions in product shipments could occur which
would have a material adverse effect on the business, financial condition and results of operations of EBC. The costs
of grains and hops are volatile and unpredictable. As with most agricultural products, the supply and price of raw
materials used to produce EBC’s beer can be affected by a number of factors beyond EBC’s control, such as frosts,
droughts, other weather conditions, economic factors affecting growing decisions, and various plant diseases and pests. If
any of the foregoing were to occur, no assurance can be given that such condition would not have a material adverse effect on
the business, financial condition and results of operations of EBC. In addition, the results of operations of EBC are
dependent upon its ability to accurately forecast its requirements of raw materials. Any failure by EBC to accurately
forecast its demand for raw materials could result in an inability to meet higher than anticipated demand for products or producing
excess inventory, either of which may adversely affect results of operations of EBC.
While
EBC believes that the relations of Bayhawk and Evans Brewing California with their suppliers are good, there can be no assurance
that these suppliers will be able or willing to supply EBC with materials at the current pricing levels, or at all, or that it
will be successful in engaging alternative suppliers on commercially reasonable terms which meet the quality or pricing levels
currently experienced by EBC. As a result, should EBC’s costs increase and if those increases are unable to be
passed on to its customers, our business, financial condition, and results of operations and cash flows may be materially adversely
impacted, which could result in the loss of your entire investment.
Product
Concentration; dependence on new product introductions.
EBC
is dependent on three principal brands: the Bayhawk Brands; the Evans Brands; and the Pigs Eye Brands, to generate revenues. While
we anticipate expanding our product offerings, we expect that these brands will continue to account for a large portion of our
revenues for the foreseeable future. Therefore, EBC’s future operating results, particularly in the near term,
are significantly dependent upon the continued market acceptance of these beer products. There can be no assurance
that EBC's beer products will continue to achieve market acceptance. Initial sales for a new alcoholic beverage product
may be caused by the interest of distributors and retailers to have the latest product on hand for potential future sale to consumers. As
a result, initial stocking orders for, or sales of, a newly introduced alcoholic beverage product may not be indicative of market
acceptance and long term consumer demand. A decline in the demand for any of EBC's beers as a result of competition,
changes in consumer tastes and preferences, government regulation or other factors would have a material adverse effect on EBC's
business, operating results and financial condition. In addition, there can be no assurance that EBC will be successful
in importing, developing, managing, introducing and marketing additional new alcoholic beverage products that will sustain sales
growth in the future.
Our
revenue growth rate depends primarily on our ability to satisfy relevant channels and end-customer demands, identify suppliers
of our necessary ingredients and to coordinate those suppliers, all subject to many unpredictable factors.
We
may not be able to identify and maintain the necessary relationships with suppliers of product and services as planned. Delays
or failures in deliveries could materially and adversely affect our growth strategy and expected results. As we supply
more customers, our rate of expansion relative to the size of such customer base will decline. In addition, one of our biggest
challenges is securing an adequate supply of suitable product. Competition for product is intense, and commodities
costs subject to price volatility.
Our
ability to execute our business plan also depends on other factors, including:
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there
is no guarantee that we will enter into definitive agreements with distributors and on acceptable terms;
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hiring
and training qualified personnel in local markets;
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managing
marketing and development costs at affordable levels;
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cost
and availability of labor;
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the
availability of, and our ability to obtain, adequate supplies of ingredients that meet our quality standards; and
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securing
required governmental approvals in a timely manner when necessary.
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We
lack sales, marketing and distribution capabilities and depend on third parties to market our products.
We
have minimal personnel dedicated solely to sales and marketing of our products and therefore we must rely primarily upon third
party distributors to market and sell our products. These third parties may not be able to market our product successfully
or may not devote the time and resources to marketing our products that we require. We also rely upon third party carriers
to distribute and deliver our products. As such, our deliveries are to a certain extent out of our control. If
we choose to develop our own sales, marketing or distribution capabilities, we will need to build a marketing and sales force
with technical expertise and with supporting distribution capabilities, which will require a substantial amount of management
and financial resources that may not be available. If we or a third party are not able to adequately sell and distribute
our product, our business will be materially harmed.
The
manufacture and sale of alcoholic beverages is regulated by federal and state law; taxation.
The
manufacture and sale of alcoholic beverages is a business that is highly regulated and taxed at the federal, state and local levels. EBC’s
operations may be subject to more restrictive regulations and increased taxation by federal, state and local governmental agencies
than are those of non-alcohol related businesses. For instance, operation of EBC’s breweries requires various
federal, state and local licenses, permits and approvals. The loss or revocation of any existing licenses, permits
or approvals, failure to obtain any additional or new licenses, permits or approvals or the failure to obtain approval for the
transfer of any existing permits or licenses could have a material adverse effect on the ability of EBC to conduct its business. Certain
states have laws restricting or forbidding a combined pub and brewery. Furthermore, U.S. Treasury Department, Bureau
of Alcohol, Tobacco and Firearms ("BATF") regulations prohibit, among other things, the payment of beer slotting allowances
to retailers. These regulations have the effect of preventing competitors with greater financial resources from excluding smaller
brewers from retailers. Any repeal or substantial modification of these regulations or the enactment of any new legislation
or regulations could have a material adverse effect on the business, financial condition and results of operations of EBC.
The
distribution of alcohol-based beverages is also subject to extensive federal and state taxation. Our operations may
be subject to increased taxation as compared with those of non-alcohol related businesses. In such event, we have to
raise prices on our products in order to maintain profit margins. The effect of such an increase could negatively impact
our sales or profitability.
We
face various operating hazards, which if not addressed correctly, could result in the reduction of our operations and the loss
of your investment.
EBC’s
operations are subject to certain hazards and liability risks faced by all brewers, such as potential contamination of ingredients
or products by bacteria or other external agents that may be wrongfully or accidentally introduced into products or packaging. EBC’s
products are not pasteurized. While EBC has never experienced a contamination problem in their products, the occurrence
of such a problem could result in a costly product recall and serious damage to the reputation of EBC for product quality. EBC’s
operations also subject employees and others to certain injury and liability risks normally associated with the operation and
possible malfunction of brewing and other equipment. Although EBC maintains insurance against certain risks under various
general liability and product liability insurance policies, no assurance can be given that EBC’s insurance will be adequate
to fully cover any incidents of product contamination or injuries resulting from brewery operations. We cannot assure
you that we will be able to continue to maintain insurance with adequate coverage for liabilities or risks arising from our business
operations on acceptable terms. Even if the insurance is adequate, insurance premiums could increase significantly
which could result in higher costs to us.
Litigation
and publicity concerning product quality, health and other issues, which can result in liabilities and also cause customers to
avoid our products, could adversely affect our results of operations, business and financial condition.
Beverage
and food service businesses can be adversely affected by litigation and complaints from customers or government authorities resulting
from food and beverage quality, illness, injury or other health concerns or operating issues stemming from consumption of products. Adverse
publicity about these allegations may negatively affect us, regardless of whether the allegations are true, by discouraging customers
from buying our products. We could also incur significant liabilities, if a lawsuit or claim results in a decision against us,
or litigation costs, regardless of the result. Further, any litigation may cause our key employees to expend resources
and time normally devoted to the operations of our business.
The
alcohol-based beverage industry also faces the possibility of class action or other similar litigation alleging that the continued
excessive use or abuse of alcohol-based beverages has caused death or serious health problems. It is also possible
that federal or state governments could assert that the use of alcohol-based beverages has significantly increased that portion
of health care costs paid for by the government. Litigation or assertions of this type have adversely affected companies
in the tobacco industry. It is possible, however, that our suppliers could be named in litigation of this type which
could have a negative impact on their business and, in turn, could also have a significant negative impact on our business.
Risks
Related to Our Common Stock and the Share Exchange
Investors
who choose to purchase shares of EBC common stock if and when offered, may have difficulty in reselling their shares due to the
lack of market or state Blue Sky laws.
As
of the date of this Report, our common stock is being trading on the OTC Markets. The stock is trading in small quantities and
there can be no guarantee that aa large market will ever develop for our common stock, or if developed, may not be sustained in
the future. Investors should be aware that there might be additional significant state law restrictions upon the ability
of investors to resell our shares.
Sales
of our common stock under Rule 144 could reduce the price of our stock.
All
of our outstanding common shares are currently eligible for resale under Rule 144. In general, persons holding restricted securities
in a publicly reporting company that is providing current public information meeting the requirements of Rule 144, including affiliates,
must hold their shares for a period of at least six months. Because EBC was previously a “shell company”
as defined in the rules of the SEC, Rule 144 is unavailable until one year from the date on which EBC filed “Form 10 information”
with the SEC (namely, December 15, 2015), which was contained in this Proxy Statement/Registration Statement and was incorporated
by reference into the Current Report on Form 8-K filed on December 15, 2015. Additionally, affiliates of EBC may not sell more
than one percent of the total issued and outstanding shares in any 90-day period and must resell the shares in an unsolicited
brokerage transaction at the market price. At the current time, all of our common stock has become available for resale under
Rule 144, since one year has transpired since the Company has filed the Form 10 information, and with the sale of any volume of
these shares the market prices for our common stock may be reduced.
We
may, in the future, issue additional securities, which would reduce our stockholders’ percent of ownership and may dilute
our share value.
Our
Certificate of Incorporation authorizes us to issue 100,000,000 shares of common stock. As of the date of this annual report,
we had 4,826,463shares of common stock outstanding. Accordingly, we may issue up to an additional 95,173,537 shares of common
stock. The future issuance of common stock may result in additional dilution in the percentage of our common stock held by our
then existing stockholders. We may value any common stock issued in the future on an arbitrary basis including for services or
acquisitions or other corporate actions that may have the effect of diluting the value of the shares held by our stockholders,
and might have an adverse effect on any trading market for our common stock. Additionally, our board of directors may
designate the rights terms and preferences of one or more series of preferred stock at its discretion including conversion and
voting preferences without prior notice to our stockholders. Any of these events could have a dilutive effect on the
ownership of our shareholders, and the value of shares owned.
Raising
additional capital may cause dilution to our existing stockholders.
We
may seek additional capital through a combination of private and public equity offerings, debt financings, collaborations, and
strategic and licensing arrangements. To the extent that we raise additional capital through the sale of common stock or securities
convertible or exchangeable into common stock, your ownership interest in EBC will be diluted.
Raising
additional capital may restrict our operations or require us to relinquish rights.
We
may seek additional capital through a combination of private and public equity offerings, debt financings, collaborations, and
strategic and licensing arrangements. To the extent that we raise additional capital through the sale of common stock
or securities convertible or exchangeable into common stock, the terms of any such securities may include liquidation or other
preferences that materially adversely affect your rights as a stockholder. Debt financing, if available, would increase
our fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional
funds through collaboration, strategic partnerships and licensing arrangements with third parties, we may have to relinquish valuable
rights to our intellectual property, future revenue streams or grant licenses on terms that are not favorable to us.
Market
volatility may affect our stock price and the value of your shares.
The
market price for our common stock is likely to be volatile, in part because our common stock has not been previously traded publicly.
In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, most of which
we cannot control, including, among others:
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announcements
of new products, brands, commercial relationships, acquisitions or other events by us or our competitors;
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regulatory
or legal developments in the United States and other countries;
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fluctuations
in stock market prices and trading volumes of similar companies;
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general
market conditions and overall fluctuations in U.S. equity markets;
|
|
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●
|
variations
in our quarterly operating results;
|
|
|
|
|
●
|
changes
in our financial guidance or securities analysts' estimates of our financial performance;
|
|
|
|
|
●
|
changes
in accounting principles;
|
|
|
|
|
●
|
our
ability to raise additional capital and the terms on which we can raise it;
|
|
|
|
|
●
|
sales
of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;
|
|
|
|
|
●
|
additions
or departures of key personnel;
|
|
|
|
|
●
|
discussion
of us or our stock price by the press and by online investor communities; and
|
|
|
|
|
●
|
other
risks and uncertainties described in these risk factors.
|
An
active public market for our common stock may not be sustained. We will work to negotiate and determine the initial public sale
price with our market makers, but this price may not be indicative of prices that will prevail in the trading market.
If
securities or industry analysts do not publish or cease publishing research or reports or publish misleading, inaccurate or unfavorable
research about us, our business or our market, our stock price and trading volume could decline.
The
trading market for our common stock will be influenced by the research and reports that securities or industry analysts may publish
about us, our business, our market or our competitors. We do not currently have and may never obtain research coverage by securities
and industry analysts. If no or few securities or industry analysts cover our company, the trading price and volume of our stock
would likely be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who
covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, or provides more favorable
relative recommendations about our competitors, our stock price would likely decline. If one or more of these analysts ceases
coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price
or trading volume to decline.
Future
sales of our common stock may cause our stock price to decline.
Sales
of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could
significantly reduce the market price of our common stock and impair our ability to raise adequate capital through the sale of
additional equity securities.
We
will be subject to penny stock regulations and restrictions, and you may have difficulty selling shares of our common stock.
The
SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market
price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. We anticipate
that our common stock will become a “penny stock”, and we will become subject to Rule 15g-9 under the Exchange Act,
or the “Penny Stock Rule”. This rule imposes additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers. For transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to
sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers
to sell any of our securities in the secondary market.
For
any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock,
of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about
sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stock.
We
do not anticipate that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common
stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the
SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction
would be in the public interest.
Our
compliance with the Sarbanes-Oxley Act and SEC rules concerning internal controls may be time consuming, difficult and costly.
EBC’s
executive officers do not have experience being an officer of a public company. It may be time consuming, difficult
and costly for us to develop and implement the internal controls and reporting procedures required by Sarbanes-Oxley. We
may need to hire additional financial reporting, internal controls and other finance staff in order to develop and implement appropriate
internal controls and reporting procedures. If we are unable to comply with Sarbanes-Oxley’s internal controls
requirements, we may not be able to obtain the independent accountant certifications that Sarbanes-Oxley Act requires publicly-traded
companies to obtain.
EBC
may issue Preferred Stock with voting and conversion rights that could adversely affect the voting power of the holders of Common
Stock.
Although
EBC presently has no intention to do so without stockholder approval, which may be obtained solely through the votes of its management
and board of directors, the Board may issue Preferred Stock with voting and conversion rights that could adversely affect the
voting power of the holders of Common Stock. Any such provision may be deemed to have a potential anti-takeover effect,
and the issuance of Preferred Stock in accordance with such provision may delay or prevent a change of control of EBC. The
Board of Directors also may declare a dividend on any outstanding shares of Preferred Stock.
We
may never pay dividends to shareholders, which could reduce the monetary gain you may realize on your investment
.
We
have not declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future
earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends
on our common stock in the foreseeable future.
The
declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend
upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements,
and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid,
and, if dividends are paid, there is no assurance with respect to the amount of any such dividend. If EBC does not pay dividends,
EBC’s common stock may be less valuable because a return on an investor’s investment will only occur if EBC’s
stock price appreciates.
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS.
|
Not
required for Smaller Reporting Companies.
Office
Locations -
The Company has office space at 3815 S. Main Street, Santa Ana, CA 92707 and warehouse space at 3815 S. Main Street,
Santa Ana, CA 92707(2,000 square feet) and it rents space for its mill at 3859 S. Main Street, Santa Ana, CA 92707 (1,500 square
feet). The combined rent for the office and warehouse space along with the mill is $3,944 a month, based on an annual lease that
renews in August. Management believes that the office space that it has is adequate for now.
ITEM
3.
|
LEGAL
PROCEEDINGS.
|
None.
ITEM
4.
|
MINE
SAFETY DISCLOSURES.
|
Not
applicable.
PART
II
ITEM
5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
Evans
Brewing Company Inc. (“EBC”), was incorporated under the laws of the State of Delaware on June 18, 2013, as ALPINE
3 Inc. On July 3, 2013, EBC filed a Registration Statement on Form 10 with the U.S. Securities and Exchange Commission (the “SEC”)
to become a public company.
EBC
was formed by Richard Chiang, who was the initial stockholder and the initial sole officer and director. On April 19, 2014, the
Board of Director appointed Mr. Michael J. Rapport and Mr. Evan Rapport to the Board of Directors.
On
April 4, 2014, Mr. Chiang 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.
Immediately
following the closing of the Share Purchase Agreement transaction, Mr. Chiang tendered his resignation as EBC’s President,
Chief Executive Officer, Chief Financial Officer, Secretary and Chairman of the Board of Directors. Michael J. Rapport, acting
as a member of the Registrant’s Board of Directors, accepted Mr. Chiang’s resignation. The resignations were in connection
with the consummation of the Share Purchase Agreement with the Trust, and were not the result of any disagreement with EBC on
any matter relating to EBC’s operations, policies, or practices. Following Mr. Chiang’s resignations, Michael Rapport
appointed himself as President, Chief Executive Officer, Chief Financial Officer, Secretary and Chairman of the Board of Directors
of EBC. Michael Rapport also appointed Evan Rapport as to serve as EBC's Vice President. Biographical Information for Michael
J. Rapport and for Evan Rapport is included below. Michael Rapport is the father of Evan Rapport.
On
October 15, 2014, Bayhawk (Ales, Inc. (“Bayhawk”) and the Company entered into an Asset Purchase and Share Exchange
Agreement (the “Agreement”), 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, the 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”). The transaction closed on December 10, 2015. 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.
Market
Information
Our
Common Stock is currently trading on the OTC QB.
Description
of Securities
The
Company’s authorized capital stock consists of 100,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000
shares of preferred stock, $0.0001 par value per share. As of December 31, 2016, there were 4,757,463 shares of common stock
outstanding and 1,000,000 shares of preferred stock were outstanding. As of December 31, 2015, an aggregate of 4,469,863
shares of our common stock were issued and outstanding and 0 shares of our preferred stock were outstanding.
Common
Stock
Each outstanding share of common stock entitles the holder thereof to one vote per share on all matters. Stockholders
do not have preemptive rights to purchase shares in any future issuance of our common stock. Upon our liquidation, dissolution
or winding up, and after payment of creditors and preferred stockholders, if any, our assets will be divided pro-rata on a share-for-share
basis among the holders of the shares of common stock.
The
holders of shares of our common stock are entitled to dividends out of funds legally available when and as declared by our board
of directors. Our board of directors has never declared a cash dividend and does not anticipate declaring any dividend in the
foreseeable future. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to receive,
ratably, the net assets available to stockholders after payment of all creditors and preferred stockholders.
Preferred
Stock
. Our Articles of Incorporation also provide that we are authorized to issue up to 10,000,000 shares of preferred stock
with a par value of $.0001 per share. As of the date of this report, there are 1,000,000 shares of preferred stock issued and
outstanding. Our Board of Directors has the authority, without further action by the shareholders, to issue from time to time
the preferred stock in one or more series for such consideration and with such relative rights, privileges, preferences and restrictions
that the Board may determine. The preferences, powers, rights and restrictions of different series of preferred stock may differ
with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking
fund provisions and purchase funds and other matters. The issuance of preferred stock could adversely affect the voting power
or other rights of the holders of common stock.
Holders
of Common stock
At
March 30, 2017, there were 600 registered shareholders otherwise entitled to hold our common shares.
Transfer
Agent and Registrar
Globex
Transfer, LLC is currently the transfer agent and registrar for our common stock. Its address is 780 Deltona Blvd,
suite 202, Deltona, FL 32725. Its phone number is (813) 344-4490.
Dividend
Policy
There
are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. The Delaware General
Corporate Laws, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
|
●
|
we
would not be able to pay our debts as they become due in the usual course of business; or
|
|
|
|
|
●
|
our
total assets would be less than the sum of our total liabilities, plus the amount that would be needed to satisfy the rights
of shareholders who have preferential rights superior to those receiving the distribution.
|
We
have not declared or paid cash dividends on our common stock since our inception, and our Board of Directors currently intends
to retain all earnings for use in the business for the foreseeable future. Any future payment of dividends to holders
of common stock will depend upon our results of operations, financial condition, cash requirements, and other factors deemed relevant
by our Board of Directors.
Securities
Authorized for Issuance under Equity Compensation Plans
The
Company has set up a compensation plan where each of the board members will receive 1,000 shares of the Company’s common
stock annually for their services.
Recent
Sales of Unregistered Securities
The
only activity in the unregistered securities was on October 9, 2014, when The Michael J. Rapport Trust (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. The board also awarded 6,000 shares of common stock to its members for services and also issued 30,000 shares of common
stock to Tech Associates, Inc. (a company owned by Richard Chiang) for services rendered pursuant to a consulting agreement. The
Company’s total shares of common stock outstanding as of December 31, 2014 were 436,000.
In
each of the transactions listed above, the securities were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as
amended, (the “Securities Act”) and rules and regulations promulgated thereunder. None of the transactions
involved a public offering.
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
EBC shares issued in connection with the Share Exchange were issued pursuant to the effective registration statement on Form S-4.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6.
|
SELECTED
FINANCIAL DATA.
|
Not
required for Smaller Reporting Companies.
ITEM 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
There
are statements in this Annual Report on Form 10-K that are not historical facts. These “forward-looking statements”
can be identified by use of terminology such as “believe,” “hope,” “may,” “anticipate,”
“should,” “intend,” “plan,” “will,” “expect,” “estimate,”
“project,” “positioned,” “strategy” and similar expressions. You should be aware that these
forward-looking statements are subject to risks and uncertainties that are beyond our control. For a discussion of these risks,
you should read this entire proxy statement/registration statement carefully, especially the risks discussed under “Risk
Factors.” Although management believes that the assumptions underlying the forward looking statements included in this proxy
statement/registration statement are reasonable, they do not guarantee our future performance, and actual results could differ
from those contemplated by these forward looking statements. The assumptions used for purposes of the forward-looking statements
specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes
in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other
information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise
of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected
results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. In the light of these
risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements
contained in this proxy statement/registration statement will in fact transpire. You are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of their dates. We expressly disclaim any obligation to update or revise
any forward-looking statements. The following discussion and analysis of the results of operations and financial condition of
Evans Brewing Company, Inc (Formerly ALPINE 3, Inc.) should be read in conjunction with the Selected Combined Financial Data,
Evans Brewing Company’s financial statements, and the notes to those financial statements that are included elsewhere in
this Form 10-K.
Overview
and Highlights
Company
Background
Evans
Brewing Company Inc. (“EBC”), was incorporated under the laws of the State of Delaware on June 18, 2013, as ALPINE
3, Inc. On July 3, 2013, EBC filed a Registration Statement on Form 10 with the U.S. Securities and Exchange Commission (the “SEC”)
to become a public company.
EBC
was formed by Richard Chiang, who was the initial stockholder and the initial sole officer and director. On April 19, 2014, the
Board of Director appointed Mr. Michael J. Rapport and Mr. Evan Rapport to the Board of Directors.
On
April 4 2014, Mr. Chiang 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.
Immediately
following the closing of the Share Purchase Agreement transaction, Mr. Chiang tendered his resignation as EBC’s President,
Chief Executive Officer, Chief Financial Officer, Secretary and Chairman of the Board of Directors. Michael J. Rapport, acting
as a member of the Registrant’s Board of Directors, accepted Mr. Chiang’s resignation. The resignations were in connection
with the consummation of the Share Purchase Agreement with the Trust, and were not the result of any disagreement with EBC on
any matter relating to EBC’s operations, policies, or practices. Following Mr. Chiang’s resignations, Michael Rapport
appointed himself as President, Chief Executive Officer, Chief Financial Officer, Secretary and Chairman of the Board of Directors
of EBC. Michael Rapport also appointed Evan Rapport as to serve as EBC's Vice President. Biographical Information for Michael
J. Rapport and for Evan Rapport is included below. Michael Rapport is the father of Evan Rapport.
Pursuant
to negotiations between EBC’s management and the management of Bayhawk Ales Inc. (“Bayhawk”), EBC and Bayhawk
determined to enter into an Asset Purchase and Share Exchange Agreement (the “Agreement”), subject to the approval
by the stockholders of Bayhawk, as discussed herein. Pursuant to the Agreement, EBC acquired the assets and operations of Bayhawk,
including the assets and operations Evans Brewing Company, a California corporation (“Evans Brewing California”),
but not including the owners of the outstanding shares of Evans Brewing California common stock, which Bayhawk retained. Bayhawk
and EBC are under common control by our majority shareholder at the time of the share exchange and as a result the transaction
will be accounted for as a business combination under common control, a method similar to the pooling-of-interest method ("Pooling-of-Interest").
EBC will be the operating entity going forward. The financial statements reflect the combined operations and combined history
of both companies.
EBC
has also acquired a restaurant, The Public House by Evans Brewing Company, which occurred on September 29, 2016, in a share exchange
agreement with Michael Rapport. Michael J Rapport is the CEO of Evans Brewing Company and as a result EBC and The Public House
are under common control. The transaction will therefore be treated as a business combinations as was EBC and Bayhawk.
Results
of Operations for the twelve months ended December 31, 2016 and December 31, 2015.
Our
operating results are summarized as follows:
|
|
Twelve months
ended
December 31, 2016
|
|
|
Twelve months
ended
December 31, 2015
|
|
Revenue
|
|
$
|
1,954,428
|
|
|
$
|
1,952,301
|
|
Cost of sales
|
|
$
|
1,588,185
|
|
|
$
|
1,456,613
|
|
Operating expenses
|
|
$
|
1,298,350
|
|
|
$
|
849,827
|
|
Other income (expenses)
|
|
$
|
(193,213
|
)
|
|
$
|
14,210
|
|
Net income (loss)
|
|
$
|
(1,127,727
|
)
|
|
$
|
(353,923
|
)
|
Revenues
During
the year ended December 31, 2016, the sales of Evans Brewing Company, Inc. were $1,954,428 compared $1,952,301 for the same period
ending December 31, 2015. The current year sales remained very closely the same as the previous year sales in spite of the acquisition
of the restaurant which increased sales by $218,916 because this was offset by a decrease in the sales of malt liquor by $182,242.
The decrease in the malt liquor sales were due to a shortage of cans to package the beer in over a two-month period of time. The
Company was not able to make up the sales lost over this period of time.
Operating
Expenses
Operating
expenses for the year ended December 31, 2016, were $1,298,350 compared to $849,827 for the year ended December 31, 2015. The
increase in operating expenses are largely attributable to the acquisition of The Public House Restaurant that added $199,300
of operating expenses along with the stock awards for bonuses and board fees valued at $190,585 and an increase in legal fees
related to our S-1 registration statement that was filed in September of 2016, and the administrative costs associated with the
annual stockholder meeting that was held in June of 2016.
Interest
Expense:
Interest
expense for the year ended December 31, 2016, was $23,252, compared to $12,197, for the year ended December 31, 2015. The amount
of this interest that is associated with related party interest is $15,299 for the year ended December 31, 2016, and $7,754 for
the year ended December 31, 2015.
Other
Income (Loss):
Other income(expense) for the year ended
December 31, 2016, was ($193,213) compared to $22,411 for the year ended December 31, 2015. The 2016, amount is made up of
$23,252 of interest expense and 4,961 to write off prior year errors, and $165,000 to write off goodwill that was on the EBC
Public House books at the time of the acquisition Evans Public House. The 2015, amount is associated with the claim
receivable established by EBC in 2014 for the fire that damaged the brewery. EBC was paid $322,410 by the insurance company
in 2015, with $300,000 offsetting the receivable and the balance treated as other income.
Net
Loss:
Net
loss from operations for the year ended December 31, 2016, was $1,127,727, compared to a loss of $353,923 for the year ended December
31, 2015. The net loss for the fiscal year ended December 31, 20156, was made up of a loss from operations of $932,106, plus other
expense of $193,213, plus a loss from taxes paid of $2,408. The net loss for the fiscal year ended December 31, 2015, was made
up of a loss from operations of $354,138, less other income of $14,210, plus a loss from taxes paid of $13,995.
Liquidity
and Capital Resources
Working
Capital
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Current Assets
|
|
$
|
572,250
|
|
|
$
|
737,564
|
|
Current Liabilities
|
|
$
|
1,050,884
|
|
|
$
|
487,760
|
|
Working Capital
|
|
$
|
(478,634
|
)
|
|
$
|
249,804
|
|
Cash
Flows
|
|
For the
twelve months
ended
December 31, 2016
|
|
|
For the twelve months ended
December 31, 2015
|
|
Cash (used) provided by Operating Activities
|
|
$
|
(854,351
|
)
|
|
$
|
75,417
|
|
Cash provided (used in) Investing Activities
|
|
$
|
(850,998
|
)
|
|
$
|
(337,844
|
)
|
Cash provided by Financing Activities
|
|
$
|
1,497,955
|
|
|
$
|
247,372
|
|
Decrease in Cash
|
|
$
|
(207,395
|
)
|
|
$
|
(15,055
|
)
|
Cash
Used In Operating Activities
For the year ended December 31, 2016, cash
used in operating activities was made up mainly of the loss of $1,127,727 plus increase in inventory of $61,356, the acquisition
of a liquor license for Public House of $50,000, reduction in deposits of $52,600, increase in accrued expenses of $41,874, stock
awards issued for board fees and bonuses valued at $190,650 and depreciation of $90,896. For the year ended December 30, 2015,
cash used in operating activities was the made up mainly of the loss of $353,923 offset by the reduction in claims receivable
of $300,000, reduction in deposits of $86,000, decrease in inventory and depreciation of $46,396.
Cash
used in investing activities:
For
the year ended December 31, 2016, cash used in investing activities was $850,998 used for the purchase of fixed assets. For the
year ended December 31, 2015, cash used in investing activities was $337,844 used for the purchase of fixed assets.
Cash
from Financing Activities
For the year December 31, 2016,
cash provided by financing activities of $1,497,955, consisted of $1,093,692 value received for issuance of 1,000,000 shares of
preferred stock plus $43,753 received from sale of stock, $43,000 received from a line of credit, $396,197 for the issuance of
related party notes payable, offset by payments on notes payable of $78,688. For the year ended December 31, 2015, cash used in
financing activities consisted of $247,372 received from issuance of notes payable of $184,042, and related party notes payable
of $90,000, offset by lease equipment payment of $26,670.
Off-Balance
Sheet Arrangements
There
are no off-balance sheet arrangements between EBC and any other entity that have, or are reasonably likely to have, a current
or future effect on the financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to stockholders.
Going Concern
The accompanying annual financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As of December 31, 2016, the Company has an accumulated deficit of $2,562,037. The Company requires
capital for its contemplated operational and marketing activities. The Company’s ability to raise additional capital through
the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s
contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the
Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s
ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result
from the outcome of these aforementioned uncertainties.
Impact
of Inflation
The
business will have to absorb any inflationary increases on development costs in the short-term, with the expectation that it will
be able to pass inflationary increases on costs on to customers through price increases on the release of new/enhanced products
into the market and hence management does not expect inflation to be a significant factor in our business.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.
Management
believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information
about our operating results and financial condition. Some of the critical accounting estimates are detailed below.
Critical
Accounting Estimates and New Accounting Pronouncements
Critical
Accounting Estimates
The
preparation of financial statements in accordance with accounting principles generally accepted in the U.S. (“U.S GAAP”)
requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management
considers an accounting estimate to be critical if:
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●
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it
requires assumptions to be made that were uncertain at the time the estimate was made, and
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●
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changes
in the estimate or different estimates that could have been selected could have a material impact on our results of operations
or financial condition.
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EBC
bases its estimates and judgments on our experience, our current knowledge, and our beliefs of what could occur in the future,
our observation of trends in the industry, information provided by our customers and information available from other sources.
Actual results may differ from these estimates under different assumptions or conditions. We have identified the following
accounting policies and estimates as those that we believe are most critical to our financial condition and results of operations
and that require management’s most subjective and complex judgments in estimating the effect of inherent uncertainties:
share-based compensation expense, income taxes, and derivative financial instruments.
Share-Based
Compensation Expense.
EBC plans to calculate share-based compensation expense for option awards and warrant
issuances ("Share-based Awards") based on the estimated grant/issue-date fair value using the Black-Scholes-Merton option
pricing model ("Black-Sholes Model"), and recognize the expense on a straight-line basis over the vesting period, net
of estimated forfeitures. The Black-Scholes Model requires the use of a number of assumptions including volatility
of the stock price, the weighted average risk-free interest rate, and the vesting period of the Share-based Award in determining
the fair value of Share-based Awards. Although we believe our assumptions used to calculate share-based compensation
expense are reasonable, these assumptions can involve complex judgments about future events, which are open to interpretation
and inherent uncertainty. In addition, significant changes to our assumptions could significantly impact the amount
of expense recorded in a given period.
Income
Taxes.
As part of the process of preparing our financial statements, EBC will be required to estimate income taxes in
each of the jurisdictions in which we operate. Our provision for income taxes is determined using the asset and liability approach
to account for income taxes. A current liability is recorded for the estimated taxes payable for the current year. Deferred tax
assets and liabilities are recorded 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. Deferred tax assets and liabilities
are measured using the enacted tax rates in effect for the year in which the timing differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of changes in tax rates or tax laws are recognized in the provision
for income taxes in the period that includes the enactment date. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount more-likely-than-not to be realized. Changes in valuation allowances will
flow through the statement of operations unless related to deferred tax assets that expire unutilized or are modified through
translation, in which case both the deferred tax asset and related valuation allowance are similarly adjusted. Where a valuation
allowance was established through purchase accounting for acquired deferred tax assets, any future change will be credited or
charged to income tax expense.
The
determination of our provision for income taxes requires significant judgment, the use of estimates, and the interpretation and
application of complex tax laws. In the ordinary course of our business, there are transactions and calculations for
which the ultimate tax determination is uncertain. In spite of our belief that we have appropriate support for all
the positions taken on our tax returns, we acknowledge that certain positions may be successfully challenged by the taxing authorities. We
determine the tax benefits more likely than not to be recognized with respect to uncertain tax positions. Although
we believe our recorded tax assets and liabilities are reasonable, tax laws and regulations are subject to interpretation and
inherent uncertainty; therefore, our assessments can involve both a series of complex judgments about future events and rely on
estimates and assumptions. Although we believe these estimates and assumptions are reasonable, the final determination
could be materially different than that which is reflected in our provision for income taxes and recorded tax assets and liabilities.
New
Accounting Pronouncements
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 flows.
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
FASB issued 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.
Management
does not believe there would be a material effect on the accompanying financial statements had any other recently issued but not
yet effective accounting standards been adopted in the current period.
Recent
Events
Closing
of Asset Purchase Transaction
On
December 10, 2015, EBC completed the previously announced acquisition of the assets and liabilities of Bayhawk, pursuant to an
Asset Purchase and Share Exchange Agreement between EBC and Bayhawk, dated October 15, 2014 (subsequently amended and restated
on August 6, 2015 (as amended, the “Agreement”)).
Pursuant
to the Agreement, Bayhawk had agreed to sell, and EBC had agreed to purchase, substantially all of Bayhawk’s assets, as
well as its liabilities (collectively, the “Asset Purchase Transaction”). The assets and liabilities of Bayhawk include
personal property, intellectual property, inventory, selected distribution contracts, websites, documents, and all other assets
however delineated relating to the Bayhawk Ales labels; and (B) all assets, including personal property, intellectual property,
inventory, contracts, websites, documents, and all other assets however delineated relating to the Evans Brands (collectively,
the “Transferred Assets”), and the assumption by EBC, pursuant to the terms and conditions set forth in the Agreement,
of all of the liabilities of Bayhawk (the “Assumed Liabilities”). (The “Evans Brands” include the former
assets of Pig’s Eye Brewing Company, including its original beers, lagers and ales (“Pig’s Eye Brands”),
as well as Evans Lager Original, Evans Lager Black, Evans Lager Light, Bad Kat Ice, and Dead Presidents.) Pursuant to the Agreement,
EBC has the right to purchase from Bayhawk 100% ownership in Evans Brewing Company, Inc., a California corporation (“Evans
Brewing California”).
Pursuant
to the Agreement, EBC and Bayhawk agreed to seek approval of the shareholders of Bayhawk relating to the Asset Purchase Transaction.
Because the principal majority stockholders of Bayhawk are also significant stockholders of EBC, Bayhawk and EBC agreed to proceed
with the Asset Purchase Transaction if it was approved by the holders of at least a majority of the Independent Shares (i.e. shares
not held by Bayhawk’s majority shareholder, The Michael J. Rapport Trust, or by Evan Rapport, who is an officer of EBC and
the son of Michael Rapport) that actually vote on the Asset Purchase Transaction proposal.
As
noted above, EBC and Bayhawk filed a registration statement on Form S-4 with the U.S. Securities and Exchange Commission (the
“Registration Statement”), which went effective on August 10, 2015. The Registration Statement included a proxy statement
seeking the votes of the Bayhawk shareholders on the Asset Purchase Transaction by written consent. On September 17, 2015, the
voting period closed, and EBC announced that approximately 99% of the shares that were voted had voted in favor of the Asset Purchase
Transaction.
In
connection with the Asset Purchase Transaction, EBC and Bayhawk entered into a General Assignment and Bill of Sale agreement (the
“Bill of Sale”) which outlined the specific assets purchased, as well as an Assignment and Assumption of Liabilities
agreement (the “Assumption Agreement) which outlined the specific liabilities of Bayhawk assumed by EBC.
Equipment
Lease to Bayhawk
Following
the closing of the Asset Purchase Transaction, EBC entered into an equipment lease (the “Equipment Lease”) with Bayhawk
pursuant to which EBC leased the brewing equipment to Bayhawk. The Equipment Lease was effective as of December 1, 2015, and continues
month to month. Bayhawk agreed to pay a minimum of $15,000 per month or net profits from operations, whichever is greater. The
title to the leased equipment will remain with EBC, and EBC has the right to inspect the equipment and its usage.
The
foregoing summaries of the terms and conditions of the Bill of Sale, the Assumption Agreement, and the Equipment Lease (collectively,
the “Ancillary Agreements”) do not purport to be complete, and are qualified in their entirety by reference to the
full text of the specific Ancillary Agreement, each of which was attached as an exhibit to the Company’s Current Report
on Form 8-K, filed with the SEC on December 15, 2015.
Change
in Shell Company Status
In
connection with the closing of the Asset Purchase Transaction and the entry into the Bill of Sale and the Assumption Agreement,
EBC acquired the assets (other than the ownership of Evans Brewing California), the liabilities, and the operations of Bayhawk.
As such, on December 10, 2015, in connection with this acquisition, EBC ceased to be a shell company as defined in Rule 12b-2,
in that it has assets consisting of more than cash and cash equivalents, and has a business plan and operations.
Share
Exchange
As
discussed in more detail in the Registration Statement, as partial consideration for the purchase of the Transferred Assets and
the assumption of the Assumed Liabilities, EBC agreed to offer to exchange shares of EBC common stock for all shares of Bayhawk
common stock that were tendered in connection with such offer, the transaction being referred to as the “Share Exchange.”
The ratio of the share exchange is one (1) share of EBC common stock for each one (1) share of Bayhawk common stock.
Pursuant
to the terms of the Agreement, the Share Exchange offer was open for a period (the “Exchange Period”) of seventy-five
(75) calendar days following the closing of the voting for the Asset Purchase Transaction. Bayhawk stockholders could tender shares
of Bayhawk common stock for participation in the Share Exchange during the Exchange Period. Any Bayhawk stockholder who tendered
Bayhawk shares in the Share Exchange had the right to withdraw any such shares tendered at any time until the closing of the Exchange
Period. EBC agreed to use its best efforts to issue the EBC Exchange Shares within three (3) Business Days following the Close
of the Exchange Period. EBC and Bayhawk agreed that upon the expiration of the Exchange Period, the Share Exchange offer would
be terminated, and any Bayhawk shareholders who have not tendered their shares of Bayhawk’s common stock may not be entitled
to participate in the Share Exchange. Additionally, any Bayhawk stockholders who elected to not participate in the Share Exchange
would remain stockholders of Bayhawk.
On
December 2, 2015, Premier Stock Transfer accepted on behalf of Evans Brewing Company, Inc., 4,033,863 Bayhawk Ales, Inc. shares
and issued 4,033,863 shares of Evans Brewing Company, Inc. shares of 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.
Public
House Stock Purchase Agreement
On
September 29, 2016, 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 close of the restaurant was based on the agreement
entered into on December 10, 2015, wherein, EBC entered into a Stock Purchase Agreement (the “Public House SPA”) with
Michael J. Rapport, as the sole shareholder of EBC Public House, Inc., a California corporation (“Public House”),
for the purchase by EBC of 100% of the outstanding shares of Public House from Mr. Rapport, with the transaction to be closed
following completion of due diligence and certain other conditions outlined below.
By
way of background, Mr. Rapport formed Public House to purchase a restaurant business located in Fullerton, California (previously
operated as Steamers Jazz Club). With the completion of the renovation and remodel the agreement to acquire the restaurant closed.
Mr. Rapport was the sole shareholder of Public House.
No
Change of Control
In
connection with the Asset Purchase Transaction, there was no change in control of EBC. The officers and directors of EBC did not
change, and the majority ownership of EBC did not change.
Michael
J. Rapport owned, through The Michael J. Rapport Trust, a majority of the outstanding common stock of both EBC and Bayhawk. As
such, following the closing of the Share Exchange, Mr. Rapport continued to own a majority of the common stock of EBC, and as
such, there was no change in control of EBC.
2015
Plan and S-8 Registration Statement
EBC
prepared and filed a Registration Statement in accordance with the requirements of Form S-8 under the Securities Act of 1933,
as amended (the “Securities Act”), to register the issuance of up to 2,000,000 shares of its common stock, par value
$0.0001 per share, that are reserved for issuance with respect to awards to be granted under the Company’s 2015 Stock Option
and Stock Award Plan (the “2015 Plan”). EBC’s Board of Directors and Stockholders approved the adoption of the
2015 Plan in October 2015. As of the date of this Annual Report, no shares had been issued pursuant to the 2015 Plan or the Registration
Statement.
Off
Balance Sheet Arrangements
In
the ordinary course of business, we enter into agreements with third parties that include indemnification provisions which, in
our judgment, are normal and customary for companies in our industry sector. These agreements are typically with business
partners, and suppliers. Pursuant to these agreements, we generally agree to indemnify, hold harmless, and reimburse
indemnified parties for losses suffered or incurred by the indemnified parties with respect to our product candidates, use of
such product candidates, or other actions taken or omitted by us. The maximum potential amount of future payments we could be
required to make under these indemnification provisions is unlimited. We have not incurred material costs to defend
lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities
relating to these provisions is minimal. Accordingly, we have no liabilities recorded for these provisions as of December
31, 2016 or December 31, 2015.
In
the normal course of business, we may be confronted with issues or events that may result in a contingent liability. These
generally relate to lawsuits, claims, environmental actions or the actions of various regulatory agencies. We consult with counsel
and other appropriate experts to assess the claim. If, in our opinion, we have incurred a probable loss as set forth
by accounting principles generally accepted in the U.S., an estimate is made of the loss and the appropriate accounting entries
are reflected in our financial statements.
Effects
of Inflation
During
the periods for which financial information is presented, the Company’s business and operations have not been materially
affected by inflation.
ITEM 7A.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Not
required for Smaller Reporting Companies.
ITEM 8.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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Our
financial statements and footnotes thereto are set forth beginning on page F-1 of this Report.
ITEM 9.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
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January
2015 Dismissal of Kenne Ruan, CPA, P.C.; Engagement of Anton & Chia, LLP
On
January 21, 2015, EBC’s board of directors dismissed Kenne Ruan, CPA, P.C. (“KR”) as EBC’s independent
registered public accounting firm effective immediately.
Other
than an explanatory paragraph included in audit report of KR for the Company's fiscal year ended December 31, 2013, relating to
the uncertainty of the Company's ability to continue as a going concern, the audit report of KR on the Company's financial statements
for the fiscal year ended December 31, 2013, and through January 21, 2015, did not contain an adverse opinion or a disclaimer
of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles.
During
the Company's 2013 and 2014 fiscal year and through the date of this Current Report on Form 8-K, (1) there were no disagreements
with KR on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which,
if not resolved to the satisfaction of KR, would have caused KR to make reference to the subject matter of the disagreements in
connection with their report, and (2) there were no “reportable events” as that term is defined in Item 304(a)(1)(v)
of Regulation S-K.
Also
on January 21, 2015, upon approval of EBC’s Board of Directors, EBC engaged Anton & Chia, LLP (“A&C”),
as EBC’s independent registered public accounting firm to audit EBC’s financial statements and to perform reviews
of interim financial statements. During the fiscal year ended December 31, 2013, through January 21, 2015, neither EBC nor anyone
acting on its behalf consulted with A&C regarding (i) either the application of any accounting principles to a specific completed
or contemplated transaction of the Company, or the type of audit opinion that might be rendered by A&C on the Company's financial
statements; or (ii) any matter that was either the subject of a disagreement with KR or a reportable event with respect to KR;
(iii) the type of audit opinion that might be rendered on the Company’s financial statements, and none of the following
was provided to the Company: (a) a written report, or (b) oral advice that A&C concluded was an important factor considered
by the Company in reaching a decision as to accounting, auditing or financial reporting issue; or (iv) Any matter that was the
subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K.
September
2015 Resignation of Anton & Chia; Engagement of Kenne Ruan, CPA, P.C.
On
September 4, 2015, EBC’s Board of Directors accepted the resignation of A&C, dated the same date, from their engagement
to be EBC’s independent certifying accountant. Other than an explanatory paragraph included in A&C’s audit report
for EBC’s fiscal year ended December 31, 2014, relating to the uncertainty of BC’s ability to continue as a going
concern, the audit report for fiscal year ended December 31, 2014, did not contain an adverse opinion or a disclaimer of opinion,
nor was it qualified or modified as to uncertainty, audit scope or accounting principles. As described below, the change in independent
public accounting firms is not the result of any disagreement with A&C. The Board of Directors approved the acceptance of
A&C’s resignation.
As
noted above, A&C was appointed by the Board of Directors to be the auditor on January 21, 2015. There were no disagreements
with A&C on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of A&C, would have caused A&C to make reference to the subject matter of the
disagreements in connection with their report, and (2) there were no “reportable events” as that term is defined in
Item 304(a)(1)(v) of Regulation S-K.
On
September 4, 2015, EBC’s Board of Directors approved the engagement of Kenne Ruan, CPA, PC (“KR”), as EBC’s
independent registered public accounting firm.
By
way of background, KR was the independent certifying accountant for EBC from its inception in June 2013, and provided an audit
report dated July 3, 2013, with respect to EBC’s financial statements as of June 30, 2013; and an audit report dated February
7, 2014, for EBC’s financial statements as of December 31, 2013. Additionally, KR reviewed EBC’s financial statements
provided in EBC’s quarterly reports for the quarters ended March 31, June 30, and September 30, 2014 (collectively, the
“Prior Services”). EBC previously dismissed KR on January 21, 2015, in connection with the appointment of A&C
noted above.
Other
than with respect to the Prior Services outlined above, EBC has not consulted with KR during its two most recent fiscal years
or during any subsequent interim period prior to its re-appointment as EBC’s auditor with respect to the application of
accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered
on EBC’s consolidated financial statements, or any other matters or reportable events as defined in Items 304(a)(2)(i) and
(ii) of Regulation S-K.
ITEM 9A.
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CONTROLS
AND PROCEDURES
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1.
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Disclosure Controls and Procedures
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Under
the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated
under the Exchange Act, as of December 31, 2016. Based on this evaluation, our principal executive officer and principal
financial officer concluded that as of the end of the period covered by this Report, our disclosure controls and procedures were
effective and were designed to provide reasonable assurance that information required to be included in our reports filed
or submitted under the Exchange Act is recorded, processed, summarized, and reported as specified in the SEC’s rules and
forms.
2.
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Changes in Internal Control Over Financial Reporting
|
During
the most recent fiscal year, there has not occurred any change in our internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating
controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls
and procedures and the remediation of any deficiencies which may be identified during this process.
3.
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Management’s Report on Internal Control Over
Financial Reporting
|
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule
13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures
that:
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●
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pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
our assets;
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●
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provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles;
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●
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provide
reasonable assurance that our receipts and expenditures are being made only in accordance with authorization of our management
and directors; and
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●
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provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that
could have a material effect on our financial statements.
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Under
the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework
in "Internal Control—Integrated Framework" (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
Based
on this evaluation, our management determined that our internal controls over financial reporting were effective as of December
31, 2016, and designed to provide reasonable assurance that information required to be included in our reports filed or submitted
under the Exchange Act is recorded, processed, summarized, and reported as specified in the SEC’s rules and forms.
4.
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Inherent Limitations on Effectiveness of Controls
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Our
disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Nevertheless,
an internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Further, the design of a control system reflects the fact that there are resource
constraints, and the benefits of controls are considered relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within
the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty,
and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any
system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become
inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
ITEM 9B.
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OTHER
INFORMATION
|
Not
applicable.
PART
III
ITEM 10.
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DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
|
Directors,
Executive Officers, Promoter and Control Persons
The
table below lists all current officers and directors of EBC. All officers serve at the discretion of the Board of Directors.
The term of office of each of our directors expire at our next Annual Meeting of Shareholders or until their successors are duly
elected and qualified. This list includes Kevin Hammons who was added to the Board of Directors subsequent to the year ended December
31, 2016.
NAME
|
|
AGE
|
|
POSITION
|
Michael
J. Rapport
|
|
60
|
|
President/CEO
and Director
|
Evan
Rapport
|
|
30
|
|
Vice
President and Director
|
Kenneth
C. Wiedrich
|
|
70
|
|
CFO
|
Mark
Lamb
|
|
53
|
|
Director
|
Roy
Roberson
|
|
55
|
|
Director
|
Joe
Ryan
|
|
51
|
|
Director
|
Kevin
Hammons
|
|
33
|
|
Director
|
The
business background descriptions of the director and officer are as follows:
Michael
J Rapport
, President/CEO and Director
Michael
Rapport currently serves as the Chairman of the Board of Bayhawk Ales Inc., a position he has held since 2013. He also serves
as President of Frontier Aluminum Corporation, an aluminum extruder company, since 1990. Additionally, Mr. Rapport is a Managing
Partner of TresHermanos, LLC, and also holds a position as President of Evans Brewing Company. In 2011, Mr. Rapport and his son
Evan Rapport started Evans Premium Lager, which has gained international attention, winning 15 awards for craft lagers. He received
a B.A. degree in Psychology from Antioch West University in 1979.
Evan
Rapport
, Vice President and Director
Evan
Rapport currently serves as the Vice President and a Director of Evans Brewing Company. He is also the President of Bayhawk Ales
Inc., a position he has held since 2013. He also serves as a Managing Partner of TresHermanos, LLC. In 2011, Mr. Rapport and his
father, Michael Rapport, started Evans Premium Lager.
Kenneth
C. Wiedrich,
CFO
Mr.
Wiedrich is a Senior level Executive with extensive hands-on experience in management, operational accounting, reporting for public
companies, finance functions and in dealing with Board of Directors, Banks, Attorneys, Audit firms and the SEC. He has been the
CFO of a number of small public companies, some of which were start-up companies, which he helped through the start-up phase of
their operation. He also has experience with government cost accounting methods and all related government acquisition regulations.
Mark
Lamb,
Director
Mr.
Lamb is a vice president of Double Diamond Financial a firm engaged in individual and business planning, where he has worked since
February, 2003. Prior to his employment at Double Diamond Financial, Mr. Lamb was a registered representative with The Robert
Driver Company, a financial services firm since October 1999. From October 1996 to October 1999, he was an account specialist
with Liberty Mutual Group and from May 1994 to October 1996 he was an account executive with Paine Webber Inc. He began his career
in financial services in June 1988 as an investment counselor with Western Financial Planning Corporation. Mr. Lamb holds a Series
7, Series 66, Series 63, and Series 6 licenses with FINRA. He also holds property, casualty, life, health and disability insurance
licenses. Mr. Lamb attended San Diego State University.
Roy
Roberson,
Director
Mr.
Roberson P.E. is a professional engineer in the land development industry. He manages real estate development projects and has
held senior management positions at several public and private businesses that serve the land development industry. He is a post-graduate
of development, real estate, investment, finance and strategic planning and management of technical professionals from the University
of California, Irvine. He received his BS from Texas A&M University, in civil engineering, in 1982. He became a registered
civil engineer in the State of California in 1989. Roy is also a founding member of Bayhawk Ales since 1994 through 2013. He has
extensive corporate start up experience in the Southern California region and has also accomplished many real estate projects
that include homes, golf courses, schools, churches, hospitals, offices, bridges, tunnels, habitat restoration flood control,
water supply as well as for corporate companies such as Space X and Virgin Galactic.
Joe
Ryan,
Director
Mr.
Ryan is responsible for business development, sales, marketing, and account management at the company he founded, Graphic
Industries, a print and interactive production company providing end-to-end solutions for the marketing and communications industry.
Mr. Ryan also founded Accomplice, a brand packing, logo design, website merchandising design, apparel, social marketing firm
that provides expertise to clients such as Verizon Wireless, Grand Canyon Brewing Company, Los Angeles Dodgers, Warner Brothers
Entertainment, and Kawasaki. From 2000 to present, Mr. Ryan is a founding partner and current sole proprietor of
The Academy of Fine Beers, where he co-created and developed as well as marketed the Josef BIERBITZCH Golden Pilsner, Wing
Man American Lager, Birra Bella and Shenanigans Irish Lager. Ryan recently conceived of and developed a Brewer Series titled
Hail to Rock, which Bayhawk Ales will produce.
KEVIN
HAMMONS, Director
Mr.
Hammons is the head brewer of Evans Brewing Company. He has over 7 years of experience in the Craft Brewing business and formerly
was the brewing manager for a boutique Orange County craft brewery where he responsible for supervising and managing a team of
11 employees, including both the brewer and cellar departments. Mr. Hammons experience also includes operation of a barrel aging
program and ensuring the quality of all beers produced a craft brewing facility.
There
are no arrangements or understandings between our officers and directors and any other person pursuant to which any director or
officer was or is to be selected as a director or officer, and there are no arrangements, plans or understandings as to whether
non-management shareholders will exercise their voting rights to continue to elect the current board of directors. There are also
no arrangements, agreements or understandings to our knowledge between non-management shareholders that may directly or indirectly
participate in or influence the management of our affairs.
Family
Relationships
Michael
J. Rapport is the father of Evan Rapport.
Other
Directorships
Other
than as indicated within this section none of the Company's directors hold or have been nominated to hold a directorship in any
company with a class of securities registered pursuant to Section 12 of the Exchange Act (the "Act") or subject to the
requirements of Section 15(d) of the Securities Act of 1933 or any or any company registered as an investment company under the
Investment Company Act of 1940.
Involvement
In Certain Legal Proceedings
During
the past five years, the Company's officers and directors have not been involved in any of the following: (1) any bankruptcy petition
filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy
or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses); (3) being subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending
or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court
of competent jurisdiction (in a civil action), the Commission or the Commodities Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Committees
of the Board
None
Board
Meetings and Committees; Annual Meeting Attendance
During
the year ended December 31, 2016, the Company had 3 formal board meetings, an annual stockholders meeting, and conducted other
business through written actions.
During
the year ended December 31, 2015, the Company 3 formal Board meetings and conducted other business through written actions.
Indemnification
The
General Corporation Law of Delaware provides that directors, officers, employees or agents of Delaware corporations are entitled,
under certain circumstances, to be indemnified against expenses (including attorneys' fees) and other liabilities actually and
reasonably incurred by them in connection with any suit brought against them in their capacity as a director, officer, employee
or agent, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of
the corporation, and with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct
was unlawful. This statute provides that directors, officers, employees and agents may also be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by them in connection with a derivative suit brought against them in their capacity
as a director, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests
of the corporation, except that no indemnification may be made without court approval if such person was adjudged liable to the
corporation.
Our
Certificate of Incorporation provides that we shall indemnify any and all persons whom we shall have power to indemnify to the
fullest extent permitted by the Delaware Corporate Law. Article VII of our By-Laws provides that we shall indemnify our authorized
representatives to the fullest extent permitted by the Delaware Law. Our By-Laws also permit us to purchase insurance on behalf
of any such person against any liability asserted against such person and incurred by such person in any capacity, or out of such
person's status as such, whether or not we would have the power to indemnify such person against such liability under the foregoing
provision of the by-laws.
The
foregoing discussion of indemnification merely summarizes certain aspects of indemnification provisions and is limited by reference
to the above discussed sections of the Delaware Corporation Law.
The
Company's Articles of Incorporation and Bylaws provide that the Company may indemnify to the full extent of its power to do so,
all directors, officers, employees, and/or agents. Insofar as indemnification by the Company for liabilities arising
under the Securities Act may be permitted to officers and directors of the Company pursuant to the foregoing provisions or otherwise,
the Company is aware that in the opinion of the Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
ITEM 11.
|
EXECUTIVE COMPENSATION.
|
Summary
Compensation Table
The
following tables lists the compensation of the Company's principal executive officers and board members for the years ended December
31, 2016 and 2015. The following information includes the dollar value of base salaries, bonus awards, the number of
non-qualified Company Options granted and certain other compensation, if any, whether paid or deferred.
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
Non-Equity Incentive Plan Compensation
|
|
|
Nonqualified Deferred Compensation Earnings
|
|
|
All Other Comp.
($)
|
|
|
Total
($)
|
|
Michael J. Rapport President/Chief Executive Officer
|
|
2016
|
|
$
|
0
|
|
|
|
-
|
|
|
$
|
0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evan Rapport, Vice President
|
|
2016
|
|
$
|
84,000
|
|
|
|
-
|
|
|
$
|
62,500
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
146,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Lamb Director
|
|
2016
|
|
$
|
0
|
|
|
|
-
|
|
|
$
|
25,000
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roy Roberson Director
|
|
2016
|
|
$
|
0
|
|
|
|
-
|
|
|
$
|
25,000
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe Ryan Director
|
|
2016
|
|
$
|
0
|
|
|
|
-
|
|
|
$
|
25,000
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth C. Wiedrich. CFO
|
|
2016
|
|
$
|
24,000
|
|
|
|
-
|
|
|
$
|
35,000
|
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
59,000
|
|
|
(1)
|
Stock
award value based on the award of 50,000 shares of common stock.
|
|
(2)
|
Stock
award value based on the award of 20,000 shares of common stock
|
|
(3)
|
Stock
award value based on the award of 28,000 shares of common stock
|
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
|
|
|
Option Awards
|
|
|
Non-Equity Incentive Plan Compensation
|
|
|
Nonqualified Deferred Compensation Earnings
|
|
|
All Other Comp.
($)
|
|
|
Total
($)
|
|
Michael J. Rapport President/Chief Executive Officer
|
|
2015
|
|
$
|
0
|
|
|
|
-
|
|
|
$
|
0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evan Rapport, Vice President
|
|
2015
|
|
$
|
0
|
|
|
|
-
|
|
|
$
|
0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Lamb Director
|
|
2015
|
|
$
|
0
|
|
|
|
-
|
|
|
$
|
0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roy Roberson Director
|
|
2015
|
|
$
|
0
|
|
|
|
-
|
|
|
$
|
0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe Ryan Director
|
|
2015
|
|
$
|
0
|
|
|
|
-
|
|
|
$
|
0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth C. Wiedrich. CFO
|
|
2015
|
|
$
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
20,000
|
|
Compensation
of Directors
Directors
are permitted to receive fixed fees and other compensation for their services as directors. The Board of Directors has the authority
to fix the compensation of directors. On July 20, 2016, the board determined that members of the board will be granted a stock
award of 20,000 shares of the Company’s common stock. Michael Rapport declined to be awarded shares for his services.
Option
Grants Table
There
were no individual grants of stock options to purchase our common stock made to the executive officers named in the Summary Compensation
Table through to date.
Aggregated
Option Exercises and Fiscal Year-End Option Value Table
There
were no stock options exercised during periods ending December 31, 2016 and December 31, 2015 by the executive officer named in
the Summary Compensation Table.
Long-Term
Incentive Plan (‘LTIP’) Awards Table
There
were no awards made to a named executive officer in the last completed fiscal year under any LTIP.
Compensation
Arrangements with Executive Management
There
were no compensation contracts for any of the executives of the Company at the end of December 31, 2016.
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|
Beneficial
Ownership Table
As
of the date of this Annual Report, the following table sets forth certain information with respect to the beneficial ownership
of our Common Stock by (i) each shareholder known by us to be the beneficial owner of more than five percent (5%) of our Common
Stock, (ii) by each of our current directors and executive officers as identified herein, and (iii) all of the Company’s
directors and executive officers as a group. Each person has sole voting and investment power with respect to the shares of Common
Stock, except as otherwise indicated. Beneficial ownership is determined in accordance with the rules of the Commission
and generally includes voting or investment power with respect to securities. Shares of Common Stock and non-qualified
Company Options, Company Warrants, and convertible securities that are currently exercisable or convertible into shares of the
Company's Common Stock within sixty (60) days of the date of this document, are deemed to be outstanding and to be beneficially
owned by the person holding the Company Options, Company Warrants, or convertible securities for the purpose of computing the
percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of
any other person. Except as set forth below, the address of each of the individuals listed is care of Evans Brewing Company, 3815
S Main Street, Santa Ana CA 92707.
Name and Address
|
|
Title of
Class
|
|
Amount and Nature of
Beneficial Ownership
|
|
|
Percentage of
Class
(1)
|
|
The Michael J Rapport Trust
2480 Railroad Street
Corona, CA 92880
|
|
Common Stock
|
|
|
3,242,684
|
|
|
|
68.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Rapport,
(2)
President, Chief Executive Officer, Chairman
|
|
Common Stock
|
|
|
3,242,684
|
|
|
|
68.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Evan Rapport, Vice President, Director
1204 Thorough Lane
Irvine, CA 92860
|
|
Common Stock
|
|
|
671,458
|
|
|
|
14.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth Wiedrich, Chief Financial Officer
|
|
Common Stock
|
|
|
28,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Lamb, Director
|
|
Common Stock
|
|
|
23,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Roy Roberson, Director
|
|
Common Stock
|
|
|
21,506
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe Ryan, Director
|
|
Common Stock
|
|
|
135,583
|
|
|
|
2.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
All Officers and Directors as a Group (6 Persons)
|
|
Common Stock
|
|
|
4,222,231
|
|
|
|
88.70
|
%
|
* Less
than one percent.
(1)
|
Percentage
of ownership is based on the 4,757,463 issued and outstanding shares of Common stock as of December 31, 2016. Duplicate entries
have been omitted in calculating the shares and percentages as a group.
|
(2)
|
Mr.
Rapport owns and holds all of his shares through The Michael J. Rapport Trust, of which he is the Trustee. He owns no shares
directly.
|
Under
Rule 144 promulgated under the Securities Act, our officers, directors and beneficial shareholders may sell up to one percent
(1%) of the total outstanding shares (or an amount of shares equal to the average weekly reported volume of trading during the
four calendar weeks preceding the sale) every three months provided that (i) current public information is available about the
Company, (ii) the shares have been fully paid for at least one year, (iii) the shares are sold in a broker’s transaction
or through a market-maker, and (iv) the seller files a Form 4 with the SEC.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires directors and certain officers of the Company, as well as persons who own more than 10% of
a registered class of the Company’s equity securities ("Reporting Persons"), to file reports with the Commission.
The Company believes that during fiscal 2016 and 2015, all Reporting Persons timely complied with all filing requirements applicable
to them, except as follows:
Messrs.
Michael Rapport (through the Trust), Evan Rapport, Lamb, Roberson, and Ryan all received shares of EBC common stock in connection
with the share exchange, tendering their shares of Bayhawk common stock for shares of EBC common stock. The shares obtained should
have been reported on Forms 4 filed within 2 days of the closing of the Share Exchange Transaction. Each of the Forms 4 were filed
late.
ITEM
13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
|
Related
Party Transactions
Michael
Rapport, through The Michael J. Rapport Trust, is the majority shareholder of EBC. On October 9, 2014, the Trust agreed to the
cancellation of 9,600,000 of the shares, and retained 400,000 shares. With the completion of the asset Purchase agreement, Michael
Rapport owns 3,242,684 shares of the Company and Evan Rapport owns 621,458 shares of the Company.
Michael
J. Rapport, through The Michael J. Rapport Trust, was a shareholder in Bayhawk Ales, Inc., and participated in the Share Exchange
Transaction, which was open to all shareholders of Bayhawk. Mr. Rapport, through the Trust, tendered 2,841,684 shares of Bayhawk
common stock, and received 2,841,684 shares of EBC common stock (on the same one-for-one terms as all other Bayhawk shareholders
who elected to tender Bayhawk shares in the Share Exchange Transaction).
During
the year ended December 31, 2016, Evan Rapport received an award of 50,000 shares for board fee and bonuses bringing the total
shares owned by Evan Rapport to 671,458.
Michael
Rapport is the father of Evan Rapport.
Director
Independence
EBC
is not required by any outside organization (such as a stock exchange or trading facility) to have independent directors.
ITEM
14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
|
Kenne
Ruan, CPA, P.C. was the Company’s independent registered public accounting firm from inception through 2014, and through
January 21, 2015, and again from September 4, 2015 to the present. Set below are aggregate fees billed by Mr. Ruan for professional
services rendered for the year ended December 31, 2015 and 2016.
Anton
& Chia, LLP was the Company’s independent registered public accounting firm from January 21, 2015 through September
4, 2015. Set below are aggregate fees billed by Anton & Chia for professional services rendered for the part of the 2015 fiscal
year.
Audit
Fees
The fees for the audit and review
services billed and to be billed by Kenne Ruan CPA, P.C. for the period September 4, 2015 through December 31, 2015 were $8,500.
Audit fees paid to Kenne Ruan CPA, PC for the year ended December 31, 2016, are $33,505
The
fees for the audit review services billed by Anton & Chia, LLP (“A&C”), for the fiscal year ended January
21, 2015, through September 4, 2015, were $100,000.
Audit
Related Fees
None
Tax
Fees
The
Company has paid Lucas, Horsfall, Accountants $5,000 for preparation of taxes for the year ended December 31, 2016, and $5,000
for the year ended December 31, 2015.
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 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.
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 $2,562,037. 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 had
no cash equivalents as of December 31, 2016, and 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 $12,791 at December 31, 2016 and
$6,950 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 December 31, 2015 and 2014:
|
|
2016
|
|
|
2015
|
|
Restaurant inventory
|
|
$
|
25,097
|
|
|
$
|
-
|
|
Raw materials
|
|
|
38,403
|
|
|
|
43,117
|
|
Work in process
|
|
|
46,168
|
|
|
|
36,861
|
|
Finished goods
|
|
|
128,933
|
|
|
|
92,790
|
|
Keg inventory
|
|
|
18,069
|
|
|
|
22,546
|
|
Less: reserve for obsolete inventory
|
|
|
(16,500
|
)
|
|
|
(16,500
|
)
|
|
|
|
|
|
|
|
|
|
Total Inventory
|
|
$
|
240,170
|
|
|
$
|
178,814
|
|
Prepaid Expenses
For the year ended December 31, 2016, prepaid
expense consists of $10,400 for prepaid state income tax and $167 in prepaid insurance. For the year ended December 31, 2015 the
prepaid expense was $11,000 which was for prepaid state income tax as well.
Deposits
For the year ended December 31, 2016, 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. For the year ended December 31, 2015, EBC had a can deposit of $135,000 with a
third-party that cans its product.
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 $65,000.
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 years ended December 31, 2016 and
2015, was $90,896 and $46,396, 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 December 31, 2016, and 2015, EBC had refundable deposits in the amounts of $107,567 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 December 31, 2016, and 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 December 31, 2016, and 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 years
ended December 31, 2016 and 2015, excise taxes amounted to approximately $117,038 and $71,534, 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 Disclosure” 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;
The Company values it’s available for sale securities using Level 1.
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 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 Accountin
g
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
FASB issued 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 December 31, 2015 and 2014:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Brewery machinery and equipment
|
|
$
|
757,438
|
|
|
$
|
731,883
|
|
Keg asset
|
|
|
311,596
|
|
|
|
311,596
|
|
Restaurant fixtures and equipment
|
|
|
821,745
|
|
|
|
-
|
|
Software
|
|
|
4,320
|
|
|
|
4,320
|
|
Vehicles
|
|
|
63,097
|
|
|
|
59,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,958,196
|
|
|
|
1,107,198
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(729,055
|
)
|
|
|
(638,159
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
1,229,141
|
|
|
$
|
469,039
|
|
NOTE
4 - NOTE PAYABLE
Note
payable 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 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 is as follows:
|
|
2016
|
|
|
2015
|
|
Note payable for the acquisition of 4300 kegs with the monthly principal obligation of $6,267
|
|
$
|
106,531
|
|
|
$
|
181,892
|
|
NOTE 5 - NOTES PAYABLE- LINE OF
CREDIT
During the year ended December 31, 2016, the Company established a line of credit with City National Bank
in the amount of $100,000 with a variable interest rate that was 5.25% as of December 31, 2016. During the year ended December
31, 2016, the Company drew down on this line of credit in the amount of $43,000. Subsequent to the year ended December 31, 2016,
the line of credit has been increased to $200,000
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; or b) if the Company’s common
stock is then publicly-traded, the bid price of its common stock on the closing day of the conversion. For the period ended December
31, 2016, the Company accrued $1,504 of interest on this note. For the year ended December 31, 2015, the Company accrued $1,500
on this same note. The accrued amount is included in accounts payable and accrued liabilities on the balance sheet. All interest
is due no later than July 21, 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 year ended December 31, 2016,
the Company accrued $3,002 of interest for this note. For the year 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 $3,002.
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 $763 has been
recorded as of the year ended December 31, 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 year ended December 31, 2016, the Company accrued $4,301 of interest for 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 year ended December 31, 2016, EBC Public House had 5 different draws against the note for a total
of $118,098. The balance of the note as of December 31, 2016, is $118,098. For the year ended December 31, 2016, the Company accrued
$709 of interest for the amount drawn on this note.
Accrued
Interest
For
the year ended December 31, 2016, the Company accrued interest of $12,450 on the notes due to Mr. Rapport. For the year ended
December 31, 2015, the Company accrued interest of $6,175 pertaining to all the notes due to Mr. Rapport.
NOTE
7 - STOCKHOLDERS’ EQUITY
Preferred
Stock
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 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. 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. As of December 31, 2016, and
December 31, 2015, there are 4,757,463 and 4,469,863 shares issued and outstanding, respectively.
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 are 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 brings the total outstanding
to 4,469,863. 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.
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:
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Weighted average number of shares
|
|
|
4,637,984
|
|
|
|
4,469,863
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,127,727
|
)
|
|
$
|
(353,923
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(0.24
|
)
|
|
$
|
(0.08
|
)
|
NOTE
9 - INCOME TAXES
The
provision for income taxes consists of the following for the year ended December 31,
|
|
2016
|
|
|
2015
|
|
Federal income tax at U.S statutory rate (34%) and (25%)
|
|
$
|
(416,608
|
)
|
|
$
|
(120,334
|
)
|
State income tax
|
|
|
(104,892
|
)
|
|
|
4,311
|
|
Add: change in valuation allowance
|
|
|
523,908
|
|
|
|
102,028
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax asset (liability)
|
|
$
|
2,408
|
|
|
|
13,995
|
|
Deferred
income taxes consist of the following for the year ended December 31,
|
|
2016
|
|
|
2015
|
|
Bad debt provision
|
|
$
|
5,095
|
|
|
$
|
4,767
|
|
Reserve for obsolete inventory
|
|
|
6,573
|
|
|
|
3,983
|
|
Insurance claim receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax asset (liability)
|
|
$
|
11,668
|
|
|
$
|
8,750
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
(579,174
|
)
|
|
$
|
(111,725
|
)
|
Depreciation
|
|
|
-
|
|
|
|
(61
|
)
|
(Valuation allowance)
|
|
|
567,506
|
|
|
|
103,035
|
|
|
|
|
|
|
|
|
|
|
Total long-term deferred tax asset (liability)
|
|
$
|
(11,668
|
)
|
|
$
|
(8,750
|
)
|
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 December
31, 2016.
As
of December 31, 2016, and 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% and 25% rate 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 and will have no tax obligation for 2016
as well. EBC management expects that the Company will not pay any federal income tax in 2017 as well, 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 Year Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Sales
|
|
|
|
|
|
|
Brewery and Malt liquor operations
|
|
$
|
1,735,512
|
|
|
$
|
1,952,301
|
|
Evans Public Restaurant
|
|
|
218,916
|
|
|
|
-
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
1,954,428
|
|
|
$
|
1,952,301
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
Brewery and Malt liquor operations
|
|
$
|
401,359
|
|
|
$
|
495,689
|
|
Evans Public Restaurant
|
|
|
(35,116
|
)
|
|
|
-
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
366,244
|
|
|
$
|
495,689
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
|
|
|
|
|
|
Brewery and Malt liquor operations
|
|
$
|
(483,423
|
)
|
|
$
|
(174,284
|
)
|
Evans Public Restaurant
|
|
|
(234,415
|
)
|
|
|
-
|
|
Corporate
|
|
|
(214,267
|
)
|
|
|
(179,854
|
)
|
|
|
$
|
(932,106
|
)
|
|
$
|
(354,138
|
)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Brewery and Malt liquor operations
|
|
$
|
12,892
|
|
|
$
|
6,022
|
|
Evans Public Restaurant
|
|
|
835
|
|
|
|
-
|
|
Corporate
|
|
|
9,525
|
|
|
|
6,175
|
|
|
|
$
|
23,252
|
|
|
$
|
12,197
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Brewery and Malt liquor operations
|
|
$
|
(4,961
|
)
|
|
$
|
26,407
|
|
Evans Public Restaurant
|
|
|
(165,000
|
)
|
|
|
-
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
(169,961
|
)
|
|
$
|
26,407
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
Brewery and Malt liquor operations
|
|
$
|
(502,784
|
)
|
|
$
|
(167,894
|
)
|
Evans Public Restaurant
|
|
|
(401,150
|
)
|
|
|
-
|
|
Corporate
|
|
|
(223,792
|
)
|
|
|
(186,029
|
)
|
|
|
$
|
(1,127,727
|
)
|
|
$
|
(353,923
|
)
|
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 year ended December 31, 2016 and the year ended December 31, 20145, was $83,161 and $83,161, respectively.
Minimum
future lease payments are as follows:
2017
|
|
|
83,161
|
|
2018
|
|
|
33,889
|
|
2019
|
|
|
2,824
|
|
|
|
|
|
|
|
|
$
|
119,874
|
|
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
|
|
|
75,198
|
|
2018
|
|
|
31,333
|
|
|
|
|
|
|
|
|
$
|
106,531
|
|
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
|
|
|
4,672
|
|
2018
|
|
|
2,092
|
|
|
|
|
|
|
|
|
$
|
6,764
|
|
Litigation
The
Company may be subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of 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 December 31, 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
December 31, 2016, three customers accounted for approximately 44%, 28%, and 9%, 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
December 31, 2016, five vendors accounted for approximately 32%, 12%, 7%, 6% and 3%, 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 year ended December 31, 2016, two vendors accounted for approximately 44% and 8% of total purchases. For the
year ended December 31, 2015, two vendors accounted for approximately 69% and 13% of total purchases.
Sales
For
the year ended December 31, 2016, three customers accounted for approximately 35%, 20%, and 13%, 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
14 - SUBSEQUENT EVENTS
Subsequent
events have been evaluated through March 31, 2017, which is the date the financial statements were available to be issued.
|
1.
|
Subsequent
to the year ended December 31, 2016, the Company issued 26,830 shares of common stock for exchange of Bayhawk shares. These shares
were sent in by shareholders prior to December 2, 2015, which was the closing date for shares to be exchanged. However, these
shares were lost by the former transfer agent and the exchange was not effected. These shares have subsequent been found and the
exchange has been made.
|
|
|
|
|
2.
|
Subsequent to the year ended December 31, 2016, Kevin Hammons was appointed to the board of directors.
|
F-18