NewAge, Inc. - Annual Report: 2015 (Form 10-K)

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2015

or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________________ to __________________________

 

AMERICAN BREWING COMPANY, INC.

(Exact name of registrant as specified in its charter)

3625 Del Amo Boulevard, Suite 385, Torrance, CA  90503
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:  (888) 240-9197

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to section 12(g) of the Act:

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes [   ]    No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes [X]    No [   ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]   No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X]    No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes [   ]   No [X]

The registrant had 15,435,651 shares of common stock outstanding as of April 5, 2016.  The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2015 was $3,529,281 as computed by reference to the closing price of such common stock on the OTCQB on such date.

 

 

- 2 -

PART I

ITEM 1. BUSINESS

Forward-Looking Statements

This report contains forward-looking statements.  Forward-looking statements are projections in respect of future events or the Company's future financial performance.  In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology.  Forward-looking statements made in an annual report on Form 10-K include statements about the Company's:

·	our plans to identify and acquire products that we believe will be prospective for acquisition and development;

·	concentration of our customer base and fulfillment of existing customer contracts;

·	our ability to maintain pricing;

·	the cyclical nature of the beverage industry, in particular the kombucha tea;

·	deterioration of the credit markets;

·	our ability to raise additional capital to fund future capital and operational expenditures;

·	increased vulnerability to adverse economic conditions due to indebtedness;

·	our identifying, making and integrating acquisitions;

·	our ability to obtain raw materials and specialized equipment;

·	technological developments or enhancements;

·	loss of key executives;

·	the ability to employ skilled and qualified workers;

·	costs and liabilities associated with environmental, health and safety laws, including any changes in the interpretation or enforcement thereof;

·	our beliefs regarding the future of our competitors;

·	our expectation that the demand for our products will eventually increase; and

·	our expectation that we will be able to raise capital when we need it.

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" set forth in this Annual Report on Form 10-K for the year ended December 31, 2015, any of which may cause our company's or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.  These risks may cause the Company's or its industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward looking statements.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity or performance.  Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

As used in this Annual Report on Form 10-K and unless otherwise indicated, the terms "we," "us," "our," or the "Company" refer to American Brewing Company, Inc.  Unless otherwise specified, all dollar amounts are expressed in United States dollars.

 

 

 

Corporate Overview

We are formerly a craft brewing company that has since transitioned to become a pure-play healthy functional beverage company.  Formerly, as a craft brewer, we won major industry awards for quality, but as one of more than 3,500 craft brewers all vying for distribution, the opportunity to capitalize on the fast-growing healthy functional beverage category, led us to recently sell our micro-brewing assets to focus on growing our recently acquired búcha® Live Kombucha brand of products.  See further discussion below under "Acquisition of Assets Related to the Kombucha Tea Business".

American Brewing Company, Inc. was formed under the laws of the State of Washington on April 26, 2010.  We amended our articles of incorporation on October 11, 2011 in order to change our capital structure and authorize 100,000 shares of voting stock common stock and 100,000 shares of non-voting common stock.  We again amended our articles of incorporation on September 25, 2013 to authorize 50,000,000 shares of common stock and 1,000,000 shares of preferred stock.  Currently, 250,000 shares of the preferred stock are classified as Series A Preferred Stock and 300,000 shares of the preferred stock are classified as Series B Preferred Stock.  As part of the recapitalization and amendment to our articles of incorporation on September 25, 2013, we also converted its corporate entity from an "S" Corporation to a "C" Corporation.

Through September 30, 2015, we were a brewery and a micro-brewing company based out of Edmonds, Washington.  We also manufacture and sell búcha® Live Kombucha, a gluten free, organic certified, sparkling kombucha tea.  On October 1, 2015 (the "Closing Date"), we sold our assets and various liabilities related to our brewery and micro-brewing operations and are no longer in that business after the Closing Date.  We recognized the sale of our brewery and micro-brewing operations as a discontinued operation, in accordance with accounting guidelines.  See further discussion below under "Discontinued Operations Related to Our Brewery and Micro-brewing Operations."

Our continuing operations are in the kombucha tea business.  We acquired the búcha® Live Kombucha brand and the assets related to the production and sale of it on April 1, 2015.  Our búcha® Live Kombucha is a gluten free, organic certified, sparkling kombucha tea and is distributed in major health and grocery chains throughout North America.  Our kombucha tea is brewed at our co-packaging facility located at 9 Minson Way, Montebello, CA  90640.  Our headquarters are located at 3625 Del Amo Boulevard, Suite 385, Torrance, CA 90503 (888) 240-9197.  We consider that our current principal office space arrangement is adequate and we will reassess our needs based upon our future growth.  Our fiscal year end is December 31st.

Acquisition of Assets Related to the Kombucha Tea Business

On April 1, 2015, we acquired substantially all of the operating assets of B&R Liquid Adventure, LLC, a California Limited Liability Company ("B&R") (the "Acquisition").  B&R is engaged in the manufacture of búcha® Live Kombucha, a gluten free, organic certified, sparkling kombucha tea.  On April 1, 2015, we executed all documents related to the Acquisition.  Upon the closing of the Acquisition, we received substantially all of the operating assets of B&R, consisting of inventory, fixed assets and intellectual property.

Kombucha, a fermented, probiotic tea beverage, offers a myriad of health benefits.  With the acquisition of the búcha® Live Kombucha brand, which features eight flavors, we plan to leverage our beer-making expertise to expand distribution in major health and grocery chains throughout North America.

The purchase price of the operating assets of B&R was a cash payment of $260,000, a secured promissory note in an amount of $140,000 and the issuance 1,479,290 shares of common stock valued at $500,000.  In addition, we assumed $121,416 of scheduled liabilities.  We accounted for the Acquisition using the acquisition method of accounting.  B&R's inventory, fixed assets and identifiable intangible assets acquired and liabilities assumed were recorded based upon their estimated fair values as of the closing date of the Acquisition.  The excess of purchase price over the value of the net assets acquired was recorded as goodwill.

 

 

 

The following table summarizes the estimated fair values of the tangible and intangible assets acquired as of the date of acquisition:

Goodwill is the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets.  In accordance with applicable accounting standards, goodwill is not amortized but instead is tested for impairment at least annually or more frequently if certain indicators are present.

Discontinued Operations Related to Our Brewery and Micro-brewing Operations

On October 1, 2015, we executed all documents related to the sale of assets and various liabilities related to our brewery and micro-brewing operations to AMBREW (the "Sale").  Under the terms of the Sale, the assets consisted of inventory, fixed assets and intellectual property.  The liabilities consisted of brewing-related contracts, liabilities related to inventory as well as lease obligations.  The liabilities consisted of brewing-related contracts held by the Company, liabilities related to inventory as well as lease obligations.  The Sale price was paid in cash of $395,650 and assumed debt owed to a third party related to three equipment financing agreements and various capital lease arrangements.

The Sale is subject to customary closing conditions, namely that the Washington State Liquor and Cannabis Board ("WSLCB") shall have approved AMBREW's assumption of the Company's WSLCB license and issued a corresponding license in AMBREW's name to operate the assets of the business from and after the Closing Date (the "WSLCB Condition").  The parties intend, to the maximum extent possible, provided that the conditions to Sale have occurred, including specifically the WSLCB Condition, that the benefits and obligations of ownership and operation of the assets of the business shall accrue to AMBREW beginning as of the Closing Date.  As of April 5, 2016, the date these financial statements were available to be issued, the WSLCB has not issued a license to AMBREW.

We have recognized the sale of our brewery and micro-brewing operations as a discontinued operation as of September 30, 2015, in accordance with ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," and provide the following supplemental information.

 

 

 

Assets and Liabilities of Discontinued Operations

The following table provides the details of the assets and liabilities of our discontinued brewery and micro-brewing operations as of the Closing Date:

Income and Expense of Discontinued Operations

The following table provides income and expense of discontinued operations for the nine months ended December 31, 2015 (Successor), the three months ended March 31, 2015 (Predecessor), and the year ended December 31, 2014 (Predecessor), respectively:

 

 

Our Products

Our revenue model is based on creating, selling and marketing búcha® Live Kombucha ready-to-drink beverages distributed and sold at retail outlets across all channels of distribution.  Our búcha® Live Kombucha product line consists of ten flavors including:

●

Raspberry Pomegranate

●

Blood Orange

●

Grapefruit Sage

●

Guava Mango

●

Lemongrass Ginger

●

Verbena Rose

●

Yuzu Lemon

●

Elderflower Green Tea

●

Tangerine/Ginger

●

Tropical Honey/Ginger.

Búcha® Live Kombucha products are 100% organic, all natural, fermented black teas made with purified water, organic cane juice, and kombucha culture with origins in China tracing back more than 2,000 years.  Kombucha products contain a colony of bacteria and yeast with more than 1 billion microorganisms.  The product end result is rich in probiotics, B-Vitamins and other nutritional ingredients.  Health benefits are mostly anecdotal but reputed to support digestion, detoxification, and boosting overall immunity.

We believe that the búcha® Live Kombucha flavor combinations and proprietary production process contribute to an industry leading flavor profile that meets core kombucha-user needs, but also has broad-based mainstream consumer appeal without the typical vinegar aftertaste associated with competitive kombucha products.

Product Quality and Consistency

The búcha® Live Kombucha products utilize a proprietary and unique production process that leads to product stability with a shelf life of nine months versus typically ninety days of competitors.  In addition to a different production process, most competitors utilize small batch production processes and are handcrafted in nature.  This leads to significant differences between batches and potential inconsistency in flavor and character every time.  In contrast, we use large batch-controlled production processes.  This statistically controlled approach, coupled with our proprietary production processes, leads to product stability, consistency, and safety with no risk of secondary fermentation and increased trace alcohol levels that can be an issue for many competitive kombucha products.

In addition to supply chain competitive advantages, our proprietary process also leads to a superior balanced flavor profile with a crisp clean finish and no harsh vinegar taste that is typically associated with competitive kombucha products.  This more rounded and balanced complex flavor profile enables búcha® Live Kombucha to appeal to a more mainstream consumer without alienating hardcore kombucha advocates, which we believe helps retailers expand the category by adding our brand to their offerings.

Operations

We operate primarily as a sales, marketing and distribution company and believe that the búcha® Live Kombucha brand, the level of retail distribution and penetration across all channels, and our retail relationships will be our greatest determinants of market value over the long term.  We currently utilize a hybrid production model whereby we purchase raw ingredients and packaging materials directly, and utilize the services of third-party manufacturers for production.  Currently we utilize the services of one third-party manufacturer, Unix Packaging Inc. in Southern California.  We then ship nationally from that location.  From a logistics standpoint, this structure leads to increased distribution expense, thereby having a negative impact on our gross margins.  In the future, we believe that we can expand our relationships into new geographies regions in order to lower supply chain and production costs, and thereby improving gross margins.

We estimate that our current production utilization at our existing manufacturer is less than 5% of their facility's overall capacity.  We are engaged in a long-term, non-exclusive supply contract that concludes in December 2016, but that we can renew upon mutual agreement.  We currently purchase our raw ingredients and packaging materials directly from our suppliers and then consolidate them.  Our component raw materials and packaging materials are readily available through multiple vendors, with limited perceived risk to consistent supply.  Anchor Glass Container Corporation is our principal packaging supplier, and California Custom Fruits and Flavors, Inc. is our primary ingredient supplier, along with multiple other secondary suppliers.

Sales and Distribution

Our búcha® Live Kombucha brand is currently distributed into approximately 2,000 stores throughout the United States and Canada and mostly in the food, drug and mass market and specialty health food stores.  To penetrate those channels and further expand national distribution, we have engaged sales agents, brokers, and regional and large national distributors to support our distribution expansion and retailer management efforts.  We have also retained Horizon, UNFI, KeHE Distributors, R&K Foods, Unified Grocers, DPI Specialty Foods and others as distributors.  Currently, we sell all of our products to our retailers either direct or through brokers and distributors.  Our larger retail clients purchase our product through their own warehouse distribution network.  Our current retail clients include Whole Foods, Kroger, Safeway, Vons and Ralphs and multiple smaller independent food, drug and mass market and specialty health food stores.

We expect to continue to expand our national distribution and retailer network into more food, drug and mass market and specialty health food stores.  Like most competitors in ready-to-drink healthy beverages, we expect to compete in all channels including food, drug, mass, convenience, gas, specialty health food, club, and other stores.

In order to continue our expansion, we anticipate that we will be required to invest in marketing and advertising to ensure consumer purchases and retailer sell-through off the shelf.  We expect to continue to offer promotional allowances, trial and sampling programs, and other initiatives to support our retailers.  These marketing investments range from 5% to 15% of net sales, and are similar to most other beverage company promotional programs.   Many retailers request some type of promotional introductory program, slotting fees or other incentives, which can be as much as 10% of net sales.  Thus far, we have been successful in mitigating or even eliminating these introductory fees and have been able to offset them with additional goods, marketing activities, and other support programs.

Market Opportunity

According to the Euromonitor and the Wall Street Journal, the kombucha category has been rapidly growing at more than 40% per year compounded annually for the last five years and reached $529 million in retail sales in the United States for 2015.  It is a global business with the United States accounting for an estimated 39.4% of the global market.  The kombucha segment is growing rapidly along with the overall healthy, functional beverage segment, as the products source volume from traditional soft drinks, juices, sweet teas and other beverages high in sugar content.

 

The kombucha category in the United States is also highly fragmented with numerous small competitors.  We believe only one major competitor has more than 80% share of the kombucha category.  The main competitors are currently in significantly broader distribution than búcha® Live Kombucha and have gained a head start with retailers and consumers in developing their brands.

Plan of Operations

We believe we have established the processes, systems, and infrastructure to enable us to expand.  In order for us to implement our business plan and further our growth and profitability over the next twelve-month period, we have identified the following milestones that we expect to achieve:

·

Expand Retail Distribution and Channel Penetration.  We are in negotiations or have received new item paperwork to introduce our búcha® Live Kombucha product line to approximately 600 additional retailers located throughout North America.  We believe that by December 31, 2016, we will be distributed in over 4,000 stores.

·	Increase Manufacturing Capacity.  To meet greater demand, we expect to expand our manufacturing which could include expansion with existing and new co-packers that are strategically located to reduce freight costs, improve cost of goods sold and efficiency and meet future growth objectives.

·

Improve Gross Margins.  We currently produce our búcha® Live Kombucha product line via a third-party manufacturer in one location in Southern California.  Our glass bottles, raw ingredients and other materials are also shipped from the Midwest and other locations.  Finished goods are produced and shipped nationally from the manufacturing location.  This model is suboptimal, and although it may be the same model as the other kombucha manufacturers in the industry, we believe that there are significant opportunities to improve gross margins by reducing supply chain expenses.

·

Expand the Distributor and Broker Network.  We expect to continue to develop our working relationships with our broker and distributor network.  We continually meet, train, and participate in sales calls with our brokers in order to provide them with the sales tools they need to help their efforts to sell our búcha® Live Kombucha product line.  In the future, we anticipate a considerable amount of travel and ongoing support for both internal staff and outside brokers.

·

Strengthen our Infrastructure and Organization.  In order to support expansion efforts and to continue the training and support of our broker network, we will need to hire approximately 2-3 more full-time employees for the specific purpose of supporting the broker, distributor and retailers and their logistical requirements.

·

Begin Marketing and Promotion.  As distribution expands, we expect to be able to provide additional focus on building our búcha® Live Kombucha product line.  These activities will be primarily concentrated on awareness and trial to enable our brand to become more of a part of the consideration set of consumers within their repertoire of current kombucha and other healthy beverage choices.

We believe that our cash flow from operations will not be sufficient to meet our working capital needs through 2016.  We will need to raise additional cash, either through the sale of equity or debt securities, to meet our planned capital expenditures and working capital requirements for the next 12 months.  We estimate that our capital needs over the next 12 months will be $400,000 to $500,000.  We will require additional cash resources to achieve the milestones indicated above.  If our own financial resources and future current cash flows from operations are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities.  The sale of additional equity securities will result in dilution to our stockholders.  The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business.  Financing may not be available in amounts or on terms acceptable to us, if at all.  Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.

Dependence on Few Customers

Receivables arising from sales of our products are not collateralized.  As of December 31, 2015 (Successor), three customers represented approximately 92.8% (59.0%, 22.9% and 10.9%) of accounts receivable.  As of December 31, 2014 (Predecessor), four customers represented approximately 75.1% (25.4%, 24.0%, 13.5% and 12.1%) of accounts receivable.

For the nine months ended December 31, 2015 (Successor), three customers represented approximately 75.6% (32.7%, 24.2% and 26.0%) of total revenue.  For the three months ended March 31, 2015 (Predecessor), three customers represented approximately 85.6% (30.2%, 29.4% and 26.0%) of total revenue.  For the year ended December 31, 2014 (Predecessor), four customers represented approximately 84.5% (28.1%, 18.9%, 18.9% and 18.6%) of revenue.

There can be no assurance that such customers will continue to order our products in the same level or at all.  A reduction or delay in orders from such customers, including reductions or delays due to market, economic or competitive conditions, could have a material adverse effect on our business, operating results and financial condition.

Marketing

We intend to market our product with a range of consumer and trade focused activities that include, but are not limited to, digital marketing and social media, retailer quarterly price promotions, co-op ads, regional press, consumer-facing public relations, experiential and event marketing and activation, consumer promotions and trial and sampling activities.

Competition

The beverage industry is extremely competitive.  The principal areas of competition include pricing, packaging, development of new products and flavors, and marketing campaigns.  Our búcha® Live Kombucha product line will be competing directly with a wide range of drinks produced by a relatively large number of manufacturers.  Most of these brands have enjoyed broad, well-established national recognition for years, through well-funded ad and other marketing campaigns.  In addition, companies manufacturing these products generally have far greater financial, marketing, and distribution resources than we have.

Important factors that will affect our ability to compete successfully include the continued public perception of the benefits of kombucha, taste and flavor of our product, trade and consumer promotions, the development of new, unique and cutting edge products, attractive and unique packaging, branded product advertising, pricing, and the success of our distribution network.

We will also be competing to secure distributors who will agree to distribute our búcha® Live Kombucha product line over those of our competitors, provide stable and reliable distribution, and secure adequate shelf space in retail outlets.  The extremely competitive pressures within the beverage categories could result in our product never even being introduced beyond what they can market locally themselves.

Our product will compete generally with all liquid refreshments, including other specialty functional beverages, such as Synergy, Kevita, Health-Ade, Reed's, Kombucha Wonder Drink, and others.

Products offered by our direct competitors are sold in various volumes and prices with prices ranging from approximately $3.29 to $4.99 for similar-sized bottles.  We currently offer our búcha® Live Kombucha products in a 16-ounce bottle for a manufacturer suggested retail price (MSRP) of $3.19 - $3.49.

Intellectual Property

Where available, we intend to obtain trademark protection in the United States for a number of trademarks for slogans and product designs.  We intend to aggressively assert our rights under trade secret, unfair competition, trademark and copyright laws to protect our intellectual property, including product design, product research and concepts and recognized trademarks.  These rights are protected through the acquisition of patents and trademark registrations, the maintenance of trade secrets, the development of trade dress, and, where appropriate, litigation against those who are, in our opinion, infringing these rights.  The trademark for búcha® Live Kombucha has been approved and is currently active.

In addition to trademark protection, the manufacture of our búcha® Live Kombucha product line utilizes a proprietary production process unique in the industry that leads to elimination of the lingering and offensive vinegary aftertaste associated with many competitive kombucha products.   In addition to flavor profile, we believe our production process also leads to the most consistent quality product in the industry that leads to product stability with a shelf life of nine months versus a maximum of ninety days of competitors.

While there can be no assurance that registered trademarks will protect our proprietary information, we intend to assert our intellectual property rights against any infringer.  Although any assertion of our rights could result in a substantial costs and diversion of efforts, we believe that the protection of our intellectual property rights will be a key component of our sales and operating strategy.

Seasonality of Business

The sales of our búcha® Live Kombucha product line are influenced to some extent by weather conditions in the markets in which we operate.  We believe that this is indicative of the seasonality associated with ready-to-drink cold beverages in general.  Unusually cold or rainy weather during the summer months may have a temporary effect on the demand for our product and contribute to lower sales, which could have an adverse effect on our results of operations for such periods.

Government Regulation

The advertising, distribution, labeling, production, safety, sale, and transportation in the United States of our búcha® Live Kombucha product line will be subject to: the Federal Food, Drug, and Cosmetic Act; the Federal Trade Commission Act; the Lanham Act; state consumer protection laws; competition laws; federal, state and local workplace health and safety laws; various federal, state and local environmental protection laws; and various other federal, state and local statutes and regulations.

Legal requirements apply in many jurisdictions in the United States requiring that deposits or certain ecotaxes or fees be charged for the sale, marketing, and use of certain non-refillable beverage containers.  The precise requirements imposed by these measures vary.  Other types of statutes and regulations relating to beverage container deposits, recycling, ecotaxes and/or product stewardship also apply in various jurisdictions in the United States.  We anticipate that additional, similar legal requirements may be proposed or enacted in the future at the local, state and federal levels in the United States.

Any third-party bottling facility that we may choose to utilize in the future and any other such operations will be subject to various environmental protection statutes and regulations, including those relating to the use of water resources and the discharge of wastewater.  It will be our policy to comply with any and all such legal requirements. Compliance with these provisions has not had, and we do not expect such compliance to have, any material adverse effect on our capital expenditures, net income or competitive position.

Kombucha is a fermented tea product.  With that fermentation, a trace amount of alcohol is produced, typically less than 0.5%.  This trace alcohol amount allows the products to be commercialized as non-alcoholic beverages.  The fact that there are trace amounts of alcohol led to consumer confusion in 2011 and 2012, which led to product recalls from various retailers.  Although the manufacture of our búcha® Live Kombucha products utilizes strict quality control processes in its production processes to keep its products at trace levels, not all kombucha products in the industry are manufactured under the same standards.  In addition, other competitors, due to their different production processes, may experience secondary fermentation in their bottles, especially as their products age, which can lead to an increase in alcohol levels above the legal trace limits.  Our manufacturing process precludes the risk of secondary fermentation, contributes to bottles not exploding upon opening, and leads to the longer shelf life, consistency and product quality.

Employees

We currently employ eight full time employees and four part-time employees in marketing, accounting, legal and administration.  We work with distributors and retail brokers in the United States who are paid on a contract basis.  Our operations are overseen directly by management that engages our employees to carry on our business.  Our management oversees all responsibilities in the areas of production, operations, corporate administration and business development.  We intend to expand our current management to retain skilled directors, officers, and employees with experience relevant to our business focus.  Our management's relationships with manufacturers, development/research companies, bottling concerns, and certain retail customers will provide the foundation through which we expect to grow our business in the future.  We believe that the skill-set of our management team will be a primary asset in the development of our brands and distribution expansion, and retailer relationships.

ITEM 1A. RISK FACTORS

An investment in our common stock involves a number of very significant risks.  You should carefully consider the following risks and uncertainties in addition to other information in this report in evaluating our Company and its business before purchasing our securities.  Our business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of the following risks.  You could lose all or part of your investment due to any of these risks.

Risks Related to Our Business

Because we have a limited operating history in the functional beverage markets, our ability to fully and successfully develop our business is unknown.

We acquired the búcha® Live Kombucha brand and the assets related to the production and sale of it on April 1, 2015.  Therefore, we have a limited operating history from which investors can evaluate our business.  Our ability to successfully develop our products, and to realize consistent, meaningful revenues and profit has not been established and cannot be assured.  For us to achieve success, our products must receive broad market acceptance by consumers.  Without this market acceptance, we will not be able to generate sufficient revenue to continue our business operation.  If our products are not widely accepted by the market, our business may fail.

Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to generate revenues, manage development costs and expenses, and compete successfully with our direct and indirect competitors.  We anticipate operating losses in upcoming future periods.  This will occur because there are expenses associated with the development, production, marketing, and sales of our product.

Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.

Our financial statements have been prepared assuming we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business.  We had an accumulated deficit of $3,331,878 and $4,863,782 as of December 31, 2015 (Successor) and 2014 (Predecessor), respectively, had net losses of $1,031,311, $72,022 and $891,435 for the nine months ended December 31, 2015 (Successor), for the three months ended March 31, 2015 (Predecessor) and for the year ended 2014 (Predecessor), respectively, and had negative working capital of $45,138 as of December 31, 2015.  These matters, among others, raise substantial doubt about our ability to continue as a going concern.

While we are attempting to increase sales and generate additional revenues, our cash position may not be significant enough to support our daily operations.  If we are unable to obtain additional financing through the issuance of debt or equity, we may be unable to continue as a going concern.  While management believes in the viability of its strategy to generate additional revenues and in its ability to raise additional funds, there can be no assurances to that effect.  The financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

We will need additional funds to produce, market, and distribute our products.

We will have to spend additional funds to produce, market and distribute our búcha® Live Kombucha product line.  If we cannot raise sufficient capital, we may have to cease operations and you could lose your investment.  We will need additional funds to produce our product for distribution to our target markets.  Even after we have produced our product, we will have to spend substantial funds on distribution, marketing and sales efforts before we will know if we have commercially viable and marketable/sellable products.

 

 

There is no guarantee that sufficient sale levels will be achieved.

There is no guarantee that the expenditure of money on distribution and marketing efforts will translate into sufficient sales to cover our expenses and result in profits.  Consequently, there is a risk that you may lose all of your investment.

Our development, marketing, and sales activities are limited by our size.

Because we are small and do not have much capital, we must limit our product development, marketing, and sales activities.  As such we may not be able to complete our production and business development program in a manner that is as thorough as we would like.  We may not ever generate sufficient revenues to cover our operating and expansion costs and you may, therefore, lose your entire investment.

 

Changes in the non-alcoholic beverage business environment and retail landscape could adversely impact our financial results.

The non-alcoholic beverage business environment is rapidly evolving as a result of, among other things, changes in consumer preferences, including changes based on health and nutrition considerations and obesity concerns; shifting consumer tastes and needs; changes in consumer lifestyles; and competitive product and pricing pressures.  In addition, the non-alcoholic beverage retail landscape is very dynamic and constantly evolving, not only in emerging and developing markets, where modern trade is growing at a faster pace than traditional trade outlets, but also in developed markets, where discounters and value stores, as well as the volume of transactions through e-commerce, are growing at a rapid pace.  If we are unable to successfully adapt to the rapidly changing environment and retail landscape, our share of sales, volume growth and overall financial results could be negatively affected.

Intense competition and increasing competition in the commercial beverage market could hurt our business.

The commercial retail beverage industry, and in particular its non-alcoholic beverage segment, is highly competitive.  Market participants are of various sizes, with various market shares and geographical reach, some of whom have access to substantially more sources of capital.

We generally compete with all ready-to-drink beverages, but more directly with healthy functional beverages, and specifically other kombucha beverages.

We compete indirectly with The Coca-Cola Company, PepsiCo, Dr. Pepper/Seven Up, Cott Corporation, Campbell's, and other juice and healthy beverage companies.  These companies have established market presence in the United States and offer a variety of beverages that are potential substitutes to our product.  We face potential direct competition from such companies, because they have the financial resources, and access to manufacturing and distribution channels to rapidly enter the functional beverage market.  We compete directly with other kombucha tea producers and brands focused on the emerging functional beverage market including:  Synergy, Kevita, Health-Ade, Reed's, Kombucha Wonder Drink, Live and more than 100 other smaller local/regional competitors.

These companies could bolster their position in the healthy functional beverage market through development, additional expenditure and promotion to expand their offerings and distribution.  Aside from Synergy, which dominates the current kombucha segment with, we believe, more than 80% market share, numerous other competitors are smaller with 2-5% share of market.  Any one of these smaller competitors could gain additional funding and become a stronger competitor which would make the business proposition of growing our búcha® Live Kombucha product line substantially more difficult to achieve.

As a result of both direct and indirect competition, our ability to successfully distribute, market and sell our product, and to gain sufficient market share in the United States to realize profits may be limited, greatly diminished, or totally diminished, which may lead to partial or total loss of your investment.

 

 

Our growth and profitability depends on the performance of third-parties and our relationship with them.

Our distribution network and its success depend on the performance of third parties.  Any non-performance or deficient performance by such parties may undermine our operations, profitability, and result in total loss to your investment.  To distribute our product, we use a broker-distributor-retailer network whereby brokers represent our products to distributors and retailers who will in turn sell our product to consumers.  The success of this network will depend on the performance of the brokers, distributors and retailers of this network.  There is a risk that a broker, distributor, or retailer may refuse to or cease to market or carry our búcha® Live Kombucha product line.  There is a risk that the mentioned entities may not adequately perform their functions within the network by, without limitation, failing to distribute to sufficient retailers or positioning our product in localities that may not be receptive to our product.  Furthermore, such third-parties' financial position or market share may deteriorate, which could adversely affect our distribution, marketing and sale activities.  We also need to maintain good commercial relationships with third-party brokers, distributors and retailers so that they will promote and carry our product.  Any adverse consequences resulting from the performance of third-parties or our relationship with them could undermine our operations, profitability and may result in total loss of your investment.

The loss of one or more of our major customers or a decline in demand from one or more of these customers could harm our business.

Receivables arising from sales of our products are not collateralized.  As of December 31, 2015 (Successor), three customers represented approximately 92.8% (59.0%, 22.9% and 10.9%) of accounts receivable.  As of December 31, 2014 (Predecessor), four customers represented approximately 75.1% (25.4%, 24.0%, 13.5% and 12.1%) of accounts receivable.

For the nine months ended December 31, 2015 (Successor), three customers represented approximately 75.6% (32.7%, 24.2% and 26.0%) of total revenue.  For the three months ended March 31, 2015 (Predecessor), three customers represented approximately 85.6% (30.2%, 29.4% and 26.0%) of total revenue.  For the year ended December 31, 2014 (Predecessor), four customers represented approximately 84.5% (28.1%, 18.9%, 18.9% and 18.6%) of revenue.

There can be no assurance that such customers will continue to order our products in the same level or at all.  A reduction or delay in orders from such customers, including reductions or delays due to market, economic or competitive conditions, could have a material adverse effect on our business, operating results and financial condition.

Health benefits of kombucha are not guaranteed or proven, rather it is perceived by consumers.

Health benefits of our búcha® Live Kombucha product line are not guaranteed and have not been proven.  There is a consumer perception that drinking kombucha has beneficial health effects.  Consequently, negative changes in consumers' perception of the benefits of kombucha or negative publicity surrounding kombucha may result in loss of market share or potential market share and hence loss of your investment.

Increase in the cost, disruption of supply or shortage of ingredients, other raw materials or packaging materials could harm our business.

We and our bottlers will use water, unique raw ingredients, sugar, packaging materials for bottles such as plastic and paper products.  The prices for these ingredients, other raw materials and packaging materials fluctuate depending on market conditions.  Substantial increases in the prices of our or our bottlers' ingredients, other raw materials and packaging materials, to the extent they cannot be recouped through increases in the prices of finished beverage products, would increase our operating costs and could reduce our profitability.  Increases in the prices of our finished products resulting from a higher cost of ingredients, other raw materials and packaging materials could affect the affordability of our product and reduce sales.

 

 

An increase in the cost, a sustained interruption in the supply, or a shortage of some of these ingredients, other raw materials, or packaging materials and containers that may be caused by a deterioration of our or our bottlers' relationships with suppliers; by supplier quality and reliability issues; or by events such as natural disasters, power outages, labor strikes, political uncertainties or governmental instability, or the like, could negatively impact our net revenues and profits.

Gross margins may not improve.

In addition to potential supply chain and production challenges, the improvement in gross margin via improved production processes, reduced material inputs, increased efficiency, reduced raw and packaging material inventory carrying costs, new raw and packaging material suppliers, and improved shipping costs will take time and are complex changes to architect and effectuate.  We intend to explore all available options concurrent with growing revenues to increase profitability, but any delays in effectuating operational improvement may limit our ability to improve gross margins and profitability.

Changes in laws and regulations relating to beverage containers and packaging could increase our costs and reduce demand for our products.

We and our bottlers intend to offer our búcha® Live Kombucha product line in nonrefillable, recyclable containers in the United States.  Legal requirements have been enacted in various jurisdictions in the United States requiring that deposits or certain ecotaxes or fees be charged for the sale, marketing and use of certain nonrefillable beverage containers.  Other proposals relating to beverage container deposits, recycling, ecotax and/or product stewardship have been introduced in various jurisdictions in the United States and overseas, and we anticipate that similar legislation or regulations may be proposed in the future at local, state and federal levels in the United States.  Consumers' increased concerns and changing attitudes about solid waste streams and environmental responsibility and the related publicity could result in the adoption of such legislation or regulations.  If these types of requirements are adopted and implemented on a large scale in the geographical regions in which we operate or intend to operate, they could affect our costs or require changes in our distribution model, which could reduce our net operating revenues or profitability.

 

Significant additional labeling or warning requirements or limitations on the availability of our product may inhibit sales of affected products.

Various jurisdictions may seek to adopt significant additional product labeling or warning requirements or limitations on the availability of our product relating to the content or perceived adverse health consequences of our product.  If these types of requirements become applicable to our product under current or future environmental or health laws or regulations, they may inhibit sales of our product.

Unfavorable general economic conditions in the United States could negatively impact our financial performance.

Unfavorable general economic conditions, such as a recession or economic slowdown, in the United States could negatively affect the affordability of, and consumer demand for, our búcha® Live Kombucha product line in the United States.  Under difficult economic conditions, consumers may seek to reduce discretionary spending by forgoing purchases of our products or by shifting away from our beverages to lower-priced products offered by other companies, including non-alkaline water.  Consumers may also cease purchasing bottled water and consume tap water.  Lower consumer demand for our product in the United States could reduce our profitability.

Adverse weather conditions could reduce the demand for our products.

The sales of our búcha® Live Kombucha product line is influenced to some extent by weather conditions in the markets in which we operate.  Unusually cold or rainy weather during the summer months may have a temporary effect on the demand for our product and contribute to lower sales, which could have an adverse effect on our results of operations for such periods.

Changes in, or failure to comply with, the laws and regulations applicable to our products or our business operations could increase our costs or reduce our net operating revenues.

The advertising, distribution, labeling, production, safety, sale, and transportation in the United States of our product will be subject to: the Federal Food, Drug, and Cosmetic Act; the Federal Trade Commission Act; the Lanham Act; state consumer protection laws; competition laws; federal, state, and local workplace health and safety laws, such as the Occupational Safety and Health Act; various federal, state and local environmental protection laws; and various other federal, state, and local statutes and regulations. Legal requirements also apply in many jurisdictions in the United States requiring that deposits or certain ecotaxes or fees be charged for the sale, marketing, and use of certain non-refillable beverage containers.  The precise requirements imposed by these measures vary.  Other types of statutes and regulations relating to beverage container deposits, recycling, ecotaxes and/or product stewardship also apply in various jurisdictions in the United States.  We anticipate that additional, similar legal requirements may be proposed or enacted in the future at the local, state and federal levels in the United States.  Changes to such laws and regulations could increase our costs or reduce our net operating revenues.

In addition, failure to comply with environmental, health or safety requirements and other applicable laws or regulations could result in the assessment of damages, the imposition of penalties, suspension of production, changes to equipment or processes, or a cessation of operations at our or our bottlers' facilities, as well as damage to our image and reputation, all of which could harm our profitability.

Our búcha® Live Kombucha product line is considered premium and healthy beverages and are being sold at premium prices compared to other functional beverages.  We cannot provide any assurances as to consumers' continued market acceptance of our current and future products.  Kombucha is a fermented tea product.  With that fermentation, a trace amount of alcohol is produced, typically less than 0.5%.  This trace alcohol amount allows the products to be commercialized as non-alcoholic beverages.  The fact that there are trace amounts of alcohol led to consumer confusion in 2011 and 2012, which led to product recalls from various retailers.  Although the manufacture of our products utilizes strict quality control processes in its production processes to keep its products at trace levels, not all kombucha products in the industry are manufactured under the same standards.  In addition, other competitors, due to their different production processes, may experience secondary fermentation in their bottles, especially as their products age, which can lead to an increase in alcohol levels above the legal trace limits.  Our manufacturing process precludes the risk of secondary fermentation, contributes to bottles not exploding upon opening, and leads to the longer shelf life, consistency and product quality.

We rely on key executive officers, and their knowledge of our business would be difficult to replace.

Our performance is highly dependent on the performance of a few employees, including executive officers, with no backstops or replacements or succession plans.  We do not have "key person" life insurance policies for any of our officers.  The loss of management and industry expertise of any of our key executive officers could result in delays in product development, loss of any future customers and sales and diversion of management resources, which could adversely affect our operating results.

 

 

Our executive officers are not subject to supervision or review by an independent board or audit committee.  Our current board of directors consists of three members, two insiders with only one independent director.  As such, we do not have an independent audit committee, compensation committee or governance committee.  As a result, the activities of our officers are not subject to the review and scrutiny of an independent board of directors or committees.

Risk Related to Our Stock

Trading on the OTCQB may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.

Our common stock is quoted on the OTCQB operated by the OTC Markets Group.  Trading in stock quoted on the OTCQB is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects.  This volatility could depress the market price of our common stock for reasons unrelated to operating performance.  Moreover, the OTCQB is not a stock exchange, and trading of securities on the OTCQB is often more sporadic than the trading of securities listed on a national securities exchange like the NASDAQ or the NYSE.  Accordingly, stockholders may have difficulty reselling any of our shares.

A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital.  Because we plan to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity or equity-linked securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors not to choose to invest in our stock.  If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations.  As a result, our business may suffer, and not be successful and we may go out of business.  We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our equity securities and we may be forced to go out of business.

Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our stockholders will not be able to receive a return on their shares unless they sell them.

We intend to retain any future earnings to finance the development and expansion of our business.  We do not anticipate paying any cash dividends on our common stock in the near 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 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.  Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them.

 

Our stock is listed on the Over-the-Counter market.  Trading of our stock may be restricted by the SEC's penny stock regulations, which may limit a stockholder's ability to buy and sell our stock.

Our stock is a penny stock.  The Securities and Exchange Commission ("SEC") has adopted Rule 15g-9 which generally defines "penny stock" to be any equity security that has a market price (as defined in Rule 15g-9) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.  Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors".  The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse.  The penny stock rules require a broker- dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market.  The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account.  The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation.  In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction.  These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules.  Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.

In addition to the "penny stock" rules promulgated by the SEC, the Financial Industry Regulatory Authority ("FINRA") has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.  Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers.  FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not Applicable.

 

ITEM 2. PROPERTIES

Executive Offices and Registered Agent

Our headquarters are located at 3625 Del Amo Boulevard, Suite 385, Torrance, CA 90503.  Our phone number is (888) 240-9197.  We consider that our current principal office space arrangement is adequate and we will reassess our needs based upon our future growth.

Our registered agent is Davies Pearson P.C., 920 Fawcett Avenue, Tacoma, WA  98402.

Intellectual Property

The description of our intellectual property is in Item 1. Business under the section entitled "Intellectual Property".

ITEM 3. LEGAL PROCEEDINGS

We know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to our company or has a material interest adverse to our company.

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

Market information

Our common stock is quoted on the OTCQB under the symbol "ABRW".  Set forth below are the range of high and low bid quotations for the period indicated as reported by the OTC Markets Group (www.otcmarkets.com).  The market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

^(*)  Based on partial period data from August 7, 2014

^(**)  No data available

Transfer Agent

The transfer agent and registrar for our common stock is Clear Trust, LLC located at 16540 Pointe Village Drive, Suite 210, Lutz, Florida.

Holders of Common Stock

As of April 5, 2016, there were approximately 110 shareholders of record of our common stock and an unknown number of shareholders who hold stock in street name (CEDE & Co.)  As of such date, 15,435,651 shares were issued and outstanding.

Registration Rights

None

Dividends

We have never declared or paid any cash dividends on our common stock.  We currently intend to retain future earnings, if any, to increase our working capital and do not anticipate paying any cash dividends in the foreseeable future.

 

 

We have never declared or paid any cash dividends on our preferred stock.  In the event that we issue any additional preferred stock, we must not declare, pay or set apart for payment any dividend or other distribution (unless payable solely in shares of our common stock or other class of stock junior to our preferred stock as to dividends or upon liquidation) in respect of our common stock, nor must we redeem, purchase or otherwise acquire for consideration shares of any of the foregoing, unless dividends, if any, payable to holders of our preferred stock for the current period (and in the case of cumulative dividends, if any, payable to holders of our preferred stock for the current period and in the case of cumulative dividends, if any, for all past periods) have been paid, are being paid or have been set aside for payment, in accordance with the terms of our preferred stock, as fixed by our board of directors.

Other than as stated above, there are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends.  The Nevada Revised Statutes, 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

Recent Sales of Unregistered Securities

Sale of Series B Preferred Stock

During the nine months ended December 31, 2015, we sold 25,000 shares of Series B Preferred for $25,000 cash.   The Series B Preferred is non-voting, not eligible for dividends and ranks equal to common stock and below Series A preferred stock.  Each share of Series B Preferred has a conversion rate into eight shares of common stock with the limitation that no shares of Series B Preferred Stock may be converted in an amount that would result in the beneficial ownership of greater than 9.99% of our outstanding common stock.

Common Stock Issued in B&R Acquisition

During the nine months ended December 31, 2015, 1,479,290 shares of common stock were issued pursuant to the acquisition of the assets related to the kombucha tea business.  We estimated the fair market value to be $0.338 per share at the time of issuance.  These shares were issued with "Price Protection" for a period of 18 months.  If the market value of the common stock issued pursuant to the Acquisition is less than $500,000, we shall issue additional shares so the aggregate amount of shares issued in the Acquisition is equal to a market value of $500,000 based on the average closing bid price of the common stock for the five days prior thereto.

Common Stock Issued for Cash

During the nine months ended December 31, 2015, 204,000 shares of common stock were sold to three investors for cash proceeds of $61,200, or $.30 per share, under a private placement offering (the "Offering").  The Offering provided for the issuance warrants to purchase 50% of the number of shares subscribed for, at a price of $.50 per share, expiring one year from the investment.  A total of 102,000 warrants were issued and expire between April 13 and June 10, 2016.

 

Common stock issued for services

During the nine months ended December 31, 2015, 707,141 shares of common stock were issued to employees and consultants in connection with services rendered as follows:

·

52,000 shares were issued to employees for services rendered.  We determine the fair market value (FMV) to be $0.44 per share at the time of issuance and recorded an expense of $22,880.

·

85,714 shares were issued to employee pursuant to an employment contract whereby the employee would be granted shares valued at $30,000.  We determined the FMV to be $0.35 per share at the time of issuance and recorded an expense of $30,000.

·

64,427 shares were issued to employee pursuant to an employment contract whereby the employee would be granted shares equal to $6,500 at the end of each quarter effective with the three months ending March 31, 2015.  We determined the per share FMV to be $0.35 as of March 31, $0.46 as of June 30, $0.42 as of September 30 and $.40 as of December 31.  Accordingly, the employee received 18,571, 14,130. 15,476 and 16,250 shares of common stock, respectively, and we recorded an expense of $26,000.

·

5,000 shares were issued to Stonefield Fund for services rendered.  We determined the FMV to be $0.44 per share at the time of issuance and recorded an expense of $2,200.

·

500,000 shares were issued to LP Funding, LLC for services rendered.  We determined the FMV to be $0.46 per share at the time of issuance and recorded an expense of $230,000.

The securities described above were sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended.

Securities Authorized for Issuance Under Equity Compensation Plans

We currently have no securities authorized under any equity compensation plans as of December 31, 2015.

Issuer Purchases of Equity Securities

We have not purchased any of our equity securities.

 

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

 

 

 

 

Total Purchase Consideration:
Cash		$	260,000
Notes payable			140,000
Common stock issued			500,000
		$	900,000

Net assets acquired:
Inventories		$	328,802
Customer relationships			250,000
Property and equipment, net			53,600
Assumption of scheduled liabilities			(121,416	)
			510,986
Goodwill		$	389,014

		Nine Months Ended December 31, 2015 Successor				Three Months Ended March 31, 2015 Predecessor				Year Ended December 31, 2014 Predecessor
Net revenues		$	1,844,889			$	576,863			$	2,789,936
Cost of goods sold			1,606,141				402,235				1,911,932
Gross Profit			238,748				174,628				878,004
Operating expenses			1,000,453				244,356				1,644,362
Other expenses			138,987				2,294				125,077
Net loss from continuing operation		$	(900,692	)		$	(72,022	)		$	(891,435	)

		Nine Months Ended December 31, 2015 Successor				Three Months Ended March 31, 2015 Predecessor				Year Ended December 31, 2014 Predecessor
Production costs/labor/freight		$	1,504,471			$	397,135			$	1,892,006
Depreciation			39,170				5,100				19,926
Amortization of customer relationships			62,500				-				-
Total cost of goods sold		$	1,606,141			$	402,235			$	1,911,932

		Nine Months Ended December 31, 2015 Successor				Three Months Ended March 31, 2015 Predecessor				Year Ended December 31, 2014 Predecessor
Advertising, promotion and selling		$	209,109			$	51,516			$	578,970
General and administrative			1,065,954				145,469				595,199
Gain on forgiveness of accrued payroll			(500,000	)			-				-
Legal and professional			225,390				47,371				470,193
Total operating expenses		$	1,000,453			$	244,356			$	1,644,362

		Increase/ (Decrease)
Advertising, promotion and selling		$	(318,345	)
General and administrative			616,224
Legal and professional:
Legal fees			(319,365	)
Professional fees, including audit and accounting			121,933
		$	100,447

		Nine Months Ended December 31, 2015 Successor				Three Months Ended March 31, 2015 Predecessor				Year Ended December 31, 2014 Predecessor
Interest expense:
Interest expense		$	36,453			$	2,294			$	5,169
Amortization of debt discount			68,466				-				120,000
			104,919				2,294				125,169
Factoring interest and fees			34,069				-				-
Interest income			(1	)			-				(92	)
Total other expenses		$	138,987			$	2,294			$	125,077

		December 31, 2015				December 31, 2014
		Successor				Predecessor
Current assets		$	525,959			$	679,952
Current liabilities			571,097				1,190,231
Working capital deficiency		$	(45,138	)		$	(510,279	)

	Nine Months Ended December 31, 2015					Three Months Ended March 31, 2015				Year Ended December 31, 2014
	Successor					Predecessor				Predecessor
Net cash (used in) provided by   operating activities		$	(633,982	)			$	24,330			$	(268,520	)
Net cash used in investing activities			(28,351	)				(11,688	)			(4,929	)
Net cash provided by (used in)   financing activities			248,054					(70,874	)			112,503
Net decrease in cash		$	(414,279	)			$	(58,232	)		$	(160,946	)

 

 

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by Item 8 is included following the "Index to Financial Statements" on page F-1 contained in this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our interim president and chief executive officer (who is the Company's principal executive officer) and our chief financial officer, treasurer, and secretary (who is the Company's principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure.  In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  The ineffectiveness of our disclosure controls and procedures was due to material weaknesses identified in our internal control over financial reporting, described below.

Management's Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over the Company's financial reporting.  In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002.  Our management, with the participation of our principal executive officer and principal financial officer has conducted an assessment, including testing, using the criteria in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") (2013).  Our system of internal control over financial reporting is 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.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  This assessment included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation.  Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2015.  The ineffectiveness of the Company's internal control over financial reporting was due to the following material weaknesses which are indicative of many small companies with small staff:

(ii)	ineffective controls over period end financial disclosure and reporting processes including a lack of multiple levels of supervision and review.

 

 

 

Our management feels the weaknesses identified above have not had any material affect on our financial results.  However, we are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the next fiscal year, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.

Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the year ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.  We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.

Management's Remediation Plan

We plan to take steps to enhance and improve the design of our internal control over financial reporting.  During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above.  To remediate such weaknesses, we plan to implement the following changes in the next fiscal year as resources allow:

(i)	appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management and implement modifications to our financial controls to address such inadequacies; and

Management believes that despite our material weaknesses set forth above, our financial statements for the year ended December 31, 2015 are fairly stated, in all material respects, in accordance with U.S. GAAP.

ITEM 9B. OTHER INFORMATION

None.

 

 

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers, Promoters and Control Persons

As of April 5, 2016, our directors and executive officers, their age, positions held, and duration of such, are as follows:

Business Experience

The following is a brief account of the education and business experience of our directors and executive officers during the past five years, indicating their principal occupation during the period, and the name and principal business of the organization by which they were employed.

Brent Willis was named Interim Chief Executive Officer, Interim Chief Financial Officer and a director of the Company on March 24, 2016.  Since 2008, Mr. Willis has been the minority or majority owner and served as Chairman and Chief Executive Officer of a number of private-equity backed companies including Unified Learning, LLC, Vivitris Life Sciences, Inc., XFit Brands, Inc. (OTCQB:XFTB), Throwdown Industries Inc., Electronic Cigarettes International Group, Ltd. (OTCQB:ECIG), Liberty Ammunition, Inc., and Vascular Technologies Inc.

 

Mr. Willis served as the President and Chief Executive Officer of Cott Corporation from May 2006 to April 2008.  From July 2002 until May 2006, Mr. Willis work for Anheuser-Busch InBev (NYSE:BUD) in numerous senior leadership capacities including Zone President, Chief Commercial Officer, Chief Marketing and Sales Officer, Board of Management Member, Board Director for numerous subsidiaries companies and joint ventures, and Board Director for AmBev (NYSE:ABEV).  While at AB InBev, he developed and implemented the strategy that transformed AB InBev into the world's largest beer company.

From 1996 to 2001, Mr. Willis served as a President in Latin America for the Coca-Cola Company (NYSE:KO).  From 1987 until 1996, Mr. Willis worked for Kraft Heinz (NASDAQ:KHC) in the United States, Asia Pacific, and Latin America in various Marketing and General Management capacities.  At Kraft, he developed led numerous brands, developed the Category Management System for the Company, and launched the Kraft Brand in China.

Mr. Willis began his career in the US Army as a 2^nd Lieutenant and served in various leadership capacities in Combat Arms in the 1^st Cavalry Division and other military units.  He was awarded numerous decorations and received an honorable discharge in 1987 with the rank of Captain.  Mr. Willis earned a Bachelor of Science degree in Engineering from the U.S. Military Academy at West Point in 1982 and an MBA from the University of Chicago in 1991.

Neil Fallon was promoted to Executive Chairman, a newly created role, on March 24, 2016.  Prior to this, Mr. Fallon has been Chief Executive Officer and a Director of the Company since inception.  He has served as a director of the Company due to the fact that he is the founder and possesses valuable business experience related to acting in a management role. In the new role as Executive Chairman, Mr. Fallon will be providing strategic leadership for the Company. Mr. Fallon previously owned his own residential real estate developing company, where he has developed and built over 100 homes sites through California and Washington States.  He specialized in the development of infill properties averaging in the range of 30-50 home sites.  His companies averaged approximately $8,000,000 in annual revenues and employed hundreds of sub contractors.  Before moving to Washington, Mr. Fallon was a Business Development Manager at Netbrowser, a technology company focused on web-based facilities management.  He was responsible for traveling extensively throughout the United States and Europe and securing strategic alliances, establishing channel sales and performing installations and tune-ups of the Company's systems.  Mr. Fallon has a BA in Business Administration with Concentrations in Finance and Marketing from Western Washington University.  Mr. Fallon has no other work experience during the previous five years.

Julie Anderson has been Vice President and a Director of the Company since December 31, 2012, and was appointed as an officer and director of the Company due to her previous relationship with the Company and knowledge of the Company's business operations and goals.  From January 2011 until December 31, 2012, Ms. Anderson handled the marketing, promotion, and social media of American Brewing Company as well as oversight of the operations of its tasting room.  Also from September 2010 to May of 2011, she was a substitute para-educator for the University Place School District.  In July of 2010, Ms. Anderson moved to Tacoma, WA from San Jose, CA. From December 1999 to June of 2010, Ms. Anderson was the office manager of Almaden Valley Counseling Service, a non-profit organization in San Jose, CA.  Ms. Anderson has no other work experience during the previous five years.

 

 

Simon Majumdar has been a director of the Company since August 14, 2014.  Mr. Majumdar is a world renowned broadcaster and author who has dedicated the second half of his life to fulfill his ambition to "Go Everywhere.  Eat Everything".  It is a journey that has taken him to all fifty states and to dozens of countries around the world.  He has written two books; "Eat My Globe" and "Eating for Britain".  His latest book, "Fed, White and Blue", which catalogs his journey to American citizenship, was published by Avery Press (an imprint of Penguin Books) in 2015. Simon is also a well-recognized personality on the Food Network, regularly appearing on shows such as Iron Chef America, The Next Iron Chef, The Best Thing I Ever Ate, Cutthroat Kitchen, Extreme Chef and Beat Bobby Flay.  He has also recently appeared as an expert commentator on National Geographic's major new series "EAT: The Story of Food".

Family Relationships

There are no family relationships among our directors and executive officers.  No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it.  No director or executive officer has been convicted of a criminal offense within the past five years or is the subject of a pending criminal proceeding.  No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.  No director or officer has been found by a court to have violated a federal or state securities or commodities law.

Significant Employees

Chuck Santry has been the búcha^® Chief Operating Officer of the búcha^® Live Kombucha Company since the April 1, 2015 acquisition of the business.  Mr. Santry has over 20 years of sales and management experience in the consumer packaged goods and food industry.  Most recently Mr. Santry was the National Sales Manager for Sabra Dipping Company, a joint venture of PepsiCo, Inc. (NYSE:PEP) and the Strauss Group from 2010 until 2015.  Prior to that he was the Director of Sales for California Creative Foods, Inc. from 1994 to 2010.  In that position he was responsible for creating the leading salsa in the perishable category.  Mr. Santry has served on the boards of various non-profit Companies throughout his career.  Mr. Santry holds a Bachelor of Sciences degree from University of Southern California, Marshall School of Business. 

 

Committees of Board of Directors

There are currently no committees of the Board of Directors.  Our board of directors is of the view that it is appropriate for us not to have a standing nominating, audit or compensation committee because the current size of our board of directors does not facilitate the establishment of a separate committee.  Our board of directors has performed, and will perform adequately, the functions of any specific committee.

Term of Office

Our directors cease to hold office immediately before their election at an annual general meeting or their appointment by the unanimous resolution of our shareholders, but are eligible for reelection or reappointment.  Notwithstanding the foregoing, our directors hold office until their successors are elected or appointed, or until their deaths, resignations or removals.  Our officers hold office at the discretion of our board of directors, or until their deaths, resignations or removals.

Potential Conflicts of Interest

We are not aware of any conflicts of interest with our directors and officers.

Director Independence

Our board of directors consists of Brent Willis, Neil Fallon, Julie Anderson and Simon Majumdar.  Our securities are quoted on the OTCQB which does not have any director independence requirements.  Under NASDAQ Marketplace Rule 5605(a)(2), a director is not considered to be independent if he or she is also an executive officer or employee of the company.  Using this definition of independence, we have determined that only one member, Simon Majumdar, is an independent director.  Brent Willis, Neil Fallon and Julie Anderson are not independent as they are officers and employees of the Company.

Involvement in Certain Legal Proceedings

Our directors and executive officers have not been involved in any of the following events during the past ten years:

 

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;

4.	being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

 

 

 

 

 

5.

being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease and desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

6.

being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Section 16(a) Beneficial Ownership Compliance

Section 16(a) of the Securities Exchange Act, as amended, requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings.  Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, during the year ended December 31, 2015, the filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied.

Code of Ethics

We currently do not have a Code of Ethics.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation

No executive officer of the Company received compensation in excess of $100,000 for the nine months ended December 31, 2015 (Successor), the three months ended March 31, 2015 (Predecessor), and the year ended December 31, 2014 (Predecessor).

Compensation Discussion and Analysis

Brent David Willis, our Interim Chief Executive Officer, Interim Chief Financial Officer and Director joined the Company in March 2016.  As of April 5, 2016, the effective date of this filing, Mr. Willis' compensation has not been finalized or approved the by the board of directors.  Management expect to finalize and obtain board approval of Mr. Willis' compensation package and equity participation within 30 days at which time, the Company will advise its shareholders by filing a Current Report on Form 8-K, if required.

Neil Fallon, our Executive Chairman and Director, receives an annual salary of $100,000 per year plus $1000 per month medical reimbursement. Mr. Fallon was paid $84,000 for the nine months ended December 31, 2015.

 

Julie Anderson, our Vice President and Director receives an annual salary of $36,000 per year plus $1000 per month medical reimbursement.  Ms. Anderson was paid $36,000 for the nine months ended December 31, 2015.

Chuck Santry, our búcha^® Chief Operating Officer, receives an annual salary of $100,000 per year plus $1000 per month medical reimbursement.  Mr. Santry was paid $84,000 for the nine months ended December 31, 2015.

Frank Commanday, our búcha^® Technical Director and Head Brew Master, receives an annual salary of $112,000 per year plus $1000 per month medical reimbursement.  Mr. Commanday was paid $93,000 for the nine months ended December 31, 2015.

Outstanding Equity Awards at Fiscal Year End

None.

Retirement or Similar Benefit Plans

No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by us for the benefit of our employees.

Resignation, Retirement, Other Termination, or Change in Control Arrangements

We have no contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to our directors or executive officers at, following, or in connection with the resignation, retirement or other termination of our directors or executive officers, or a change in control of our company or a change in our directors' or executive officers' responsibilities following a change in control.

Director Compensation

All directors receive reimbursement for reasonable out of pocket expenses in attending board of directors' meetings and for promoting our business.  From time to time we may engage certain members of the board of directors to perform services on our behalf.  In such cases, we intend to compensate the members for their services at rates no more favorable than could be obtained from unaffiliated parties.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following tables set forth, as of April 5, 2016, certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and executive officers.  Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.

In the following tables, we have determined the number and percentage of shares beneficially owned in accordance with Rule 13d3 of the Securities Exchange Act of 1934 based on information provided to us by our controlling stockholder, executive officers and directors, and this information does not necessarily indicate beneficial ownership for any other purpose. In determining the number of shares of our common stock beneficially owned by a person and the percentage ownership of that person, we include any shares as to which the person has sole or shared voting power or investment power, as well as any shares subject to warrants or options held by that person that are currently exercisable or exercisable within 60 days.

 

 

Security Ownership of Certain Beneficial Holders

Security Ownership of Management

 

 

Changes in Control

As of December 31, 2015, we are not aware of any arrangement that may result in a change in control.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

Except as set out below, as of December 31, 2015, there have been no transactions, or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect material interest:

·

any director or executive officer of our company;

·

any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock;

·

any promoters and control persons; and

·

any member of the immediate family (including spouse, parents, children, siblings and in laws) of any of the foregoing persons.

Named Executive Officers and Current Directors

For information regarding compensation for our named executive officers and current directors, see "Executive Compensation".

 

Director Independence

Our board of directors consists of Neil Fallon, Julie Anderson and Simon Majumdar.  Our securities are quoted on the OTCQB which does not have any director independence requirements.  Under NASDAQ Marketplace Rule 5605(a)(2), a director is not considered to be independent if he or she is also an executive officer or employee of the company.  Using this definition of independence, we have determined that only one member, Simon Majumdar, is an independent director.  Neil Fallon and Julie Anderson are not independent as they are both officers and employees of the Company.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit and Accounting Fees

Effective April 27, 2015, Hartley Moore Accountancy Corporation ("HMAC") was dismissed as the Company's independent registered public accounting firm.  On April 27, 2015 the Registrant engaged MaloneBailey, LLP ("MB") as the Registrant's new independent registered public accounting firm.  The following table sets forth the fees billed to the Company for professional services rendered by HMAC and MB, respectively, for the years ended December 31, 2015 and 2014:

Audit Fees

The audit fees were paid for the audit services of our annual and quarterly reports and issuing consents for our registration statements.

Audit Related Fees

For the year ended December 31, 2015, the audit related fees shown in the table above are related to the historical audit of B&R Liquid Adventure, LLC. as of December 31, 2014 and 2013 and for the years ended December 31, 2014 and 2013, as well as the review of the three-month periods ended March 31, 2015 and 2014 (unaudited).  On April 1, 2015, we acquired the búcha® Live Kombucha brand and the assets related to the production and sale of it.

Tax Fees

The tax fees were paid for reviewing various tax related matters.

Pre-Approval Policies and Procedures

Our board of directors preapproves all services provided by our independent registered public accounting firm.  All of the above services and fees were reviewed and approved by the board of directors before the respective services were rendered.  Our board of directors has considered the nature and amount of fees billed by HMAC and MaloneBailey and believes that the provision of services for activities unrelated to the audit is compatible with maintaining their respective independence.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibits required by Regulation S-K

 

*	Filed herewith

**

Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AMERICAN BREWING COMPANY, INC.

FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

American Brewing Company, Inc.

Torrance, California

We have audited the accompanying balance sheets of American Brewing Company, Inc. (the "Company") as of December 31, 2015 (Successor) and of B&R Liquid Adventure, LLC as of December 31, 2014 (Predecessor), and the related statements of operations, members' capital and stockholders' equity (deficit), and cash flows for each of the years ended December 31, 2015 and 2014.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Brewing Company, Inc. as of December 31, 2015 and of B&R Liquid Adventure, LLC (Predecessor) as of December 31, 2014, and the results of their operations and their cash flows for each of the years ended December 31, 2015 and 2014 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company had an accumulated deficit at December 31, 2015, recurring net losses, and a working capital deficit at December 31, 2015, which raises substantial doubt about its ability to continue as a going concern.  Management's plans concerning these matters are also described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ MaloneBailey, LLP

www.malonebailey.com

Houston, Texas

April 5, 2016