| Significant Accounting Policies | (2) Significant Accounting Policies
A) Use of Estimates The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Those estimates and assumptions include estimates for reserves of uncollectible accounts, inventory obsolescence, depreciable lives
of property and equipment, analysis of impairments of recorded long-term assets and intangibles, realization of deferred tax assets,
accruals for potential liabilities and assumptions made in valuing stock instruments issued for services.
B) Accounts Receivable The Company evaluates the collectability
of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s
inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces
the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer
identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall
assessment of past due trade accounts receivable outstanding. The allowance for doubtful accounts
and returns and discounts is established through a provision reducing the carrying value of receivables. At December 31, 2018 and
2017, the allowance for doubtful accounts and returns and discounts was $623 and $601, respectively.
C) Inventory Inventory is stated at the lower of
cost or the current estimated market value of the inventory. We regularly review our inventory quantities on hand and record a
provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and our ability to sell
the product(s) concerned. Demand for our products can fluctuate significantly. Factors that could affect demand for our products
include unanticipated changes in consumer preferences, general market conditions or other factors, which may result in cancellations
of advance orders or a reduction in the rate of reorders placed by customers. Additionally, our management’s estimates of
future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete
inventory. At December 31, 2018 and 2017, the reserve for inventory obsolescence aggregated $197 and $509, respectively.
D) Property and Equipment and Related Depreciation Property and equipment is stated at
cost. Expenditures for major renewals and improvements that extend the useful lives of property and equipment or increase production
capacity are capitalized, and expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is calculated
using accelerated and straight-line methods over the estimated useful lives of the assets as follows:
Property and Equipment Type Years of Depreciation
Building 39 years
Machinery and equipment 5-12 years
Vehicles 5 years
Office equipment 5-7 years Management assesses the carrying value
of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the
asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized
to write down the asset to its estimated fair value. In anticipation of the sale of our Los
Angeles facility (see Note 3), we reclassified all the assets of the facility to Equipment Held for Sale. During the year ended
December 31, 2017, we recorded impairment charges aggregating $5,925 to reduce the carrying amount of our Los Angeles assets to
the estimated amount we believed to be recoverable.
E) Intangible Assets and Impairment Policy Intangible assets are comprised of indefinite-lived
brand names acquired, so classified because we anticipate that these brand names will contribute cash flows to the Company perpetually.
Indefinite-lived intangible assets are not amortized but are assessed for impairment annually and evaluated annually to determine
whether the indefinite useful life is appropriate. As part of our impairment test, we first assess qualitative factors to determine
whether it is more likely than not the asset is impaired. If further testing is necessary, we compare the estimated fair value
of our asset with its book value. If the carrying amount of the asset exceeds its fair value, as determined by its discounted cash
flows, an impairment loss is recognized in an amount equal to that excess. During our December 31, 2018 impairment
testing, we determined that our Sonoma Sparkler trademark is unlikely to provide future benefit to the Company, because we do not
currently offer Sonoma Sparkler products and we do not anticipate doing so in the foreseeable future. Accordingly, we reduced the
book value of this asset to zero as of December 31, 2018, by recording an impairment charge of $229. No impairments were noted
during the year ended December 31, 2017.
F) Concentrations The Company’s cash balances on
deposit with banks are guaranteed by the Federal Deposit Insurance Corporation up to $250. Generally, the Company’s policy
is to minimize borrowing costs by immediately applying cash receipts to borrowings against its credit facility. From time to time,
however, the Company may be exposed to risk for the amounts of funds held in bank accounts in excess of the insurance limit. To
minimize the risk, the Company’s policy is to maintain cash balances with high quality financial institutions. During the year ended December 31, 2018,
the Company had two customers that accounted for approximately 24% and 17% of its sales, respectively; and during the year ended
December 31, 2017, the Company had two customers that accounted for 23% and 16% of its sales, respectively. No other customer accounted
for more than 10% of sales in either year. As of December 31, 2018, the Company
had accounts receivable from two customers that comprised 36% and 19% of total accounts receivable, respectively. As of December
31, 2017, the Company had accounts receivable from two customers that comprised 25% and 14% of its total accounts receivable, respectively.
No other customer accounted for more than 10% of accounts receivable in either year. During the years ended December 31,
2018 and 2017, respectively, the Company utilized three separate co-packers for most its production and bottling of beverage products
in the eastern United States. With the December 31, 2018 Plant Sale, the Company no longer conducts a manufacturing operation,
accordingly it utilizes co-packers to produce 100% of its products as of that date. The Company has long-standing relationships
with two different co-packers, and in conjunction with the Plant Sale we entered into a third co-packing agreement with California
Custom Beverage LLC (“CCB”), the purchaser of the plant (see Note 3). CCB is 100% owned by Chris Reed, founder of the
Company and current Chief Information Officer and director. Although there are other packers, a change in co-packers may cause
a delay in the production process, which could ultimately affect operating results. During the years ended December 31,
2018, the Company’s two largest vendors accounted for 16% and 13% of its purchases, respectively. During the year ended December
31, 2017, the Company made 20%, of its purchases from a single vendor. At December 31, 2018 and 2017, accounts payable to the Company’s
largest vendor comprised 24% and 20% of our total accounts payable, respectively. No other account was more than 10% of our accounts
payable in either year.
G) Fair Value of Financial Instruments The Company uses various inputs in determining
the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the
balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Accounting
Standards Codification Section 820 defines the following levels directly related to the amount of subjectivity associated with
the inputs: Level 1—Quoted prices in active
markets for identical assets or liabilities. Level 2—Inputs, other than the
quoted prices in active markets, that are observable either directly or indirectly. Level 3—Unobservable inputs based
on the Company’s assumptions. The carrying amounts of financial assets
and liabilities, such as cash and cash equivalents, accounts receivable, short-term bank loans, accounts payable, notes payable
and other payables, approximate their fair values because of the short maturity of these instruments. The carrying values of lease
obligations and long-term financing obligations approximate their fair values since the interest rates on these obligations are
based on prevailing market interest rates. As of December 31, 2018, and December
31, 2017, the Company’s balance sheets included warrant liabilities aggregating $38 and $36 respectively, measured at fair
value based on Level 2 inputs.
H) Segments The Company operates in one segment
for the manufacture and distribution of our products. In accordance with the “Segment Reporting” Topic of the ASC,
the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews
operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance,
which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly
and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity
holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting”
due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement,
manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment
Reporting” can be found in the accompanying financial statements
I) Cost of Goods Sold Cost of goods sold is comprised of the
costs of raw materials and packaging utilized in the manufacture of products, co-packing fees, repacking fees, in-bound freight
charges, as well as certain internal transfer costs. Additionally, cost of goods sold includes direct production costs in excess
of charges allocated to finished goods in production. Plant costs include labor costs, production supplies, repairs and maintenance,
direct inventory write-off charges and adjustments to the inventory reserve. Charges for labor and overhead allocated to finished
goods are determined on a market cost basis, which may be lower than the actual costs incurred. Plant costs in excess of production
allocations are expensed in the period incurred rather than added to the cost of finished goods produced. Expenses not related
to the production of our products are classified as operating expenses. The Company terminated its manufacturing
operation effective with the December 31, 2018 Plant Sale. See Note 3.
J) Delivery and Handling Expense Shipping and handling costs are comprised
of purchasing and receiving, inspection, warehousing, transfer freight, and other costs associated with product distribution after
manufacture and are included as part of operating expenses.
K) Income Taxes The Company uses an asset and liability
approach for accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon
the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided
for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more
likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility
is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax
expense.
L) Revenue Recognition In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606), (“ASC 606”). The underlying principle of ASC 606 is to recognize
revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step
model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the
contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining
the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue
as each performance obligation is satisfied. The Company adopted ASC 606 effective January 1, 2018, and adoption of such standard
had no effect on previously reported balances. The Company previously recognized and
continues to recognize revenue when risk of loss transfers to our customers and collection of the receivable is reasonably assured,
which generally occurs when product is shipped. A written order from the customer must be received and credit acceptance procedures
performed prior to shipment of product. The Company does not have any significant
contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts
that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer
obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer. Revenue
and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon shipment
from our facilities. The Company’s performance obligations are satisfied at that time. All of the Company’s products
are offered for sale as finished goods only, and there are no performance obligations required post-shipment for customers to derive
the expected value from them. The Company does not allow for returns,
except for damaged products when the damage occurred pre-fulfillment. Damaged product returns have historically been insignificant.
Because of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing
for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts
and the reasonableness of our conclusions on a quarterly basis. The Company accounts for certain sales
incentives to customers, including slotting fees, as a reduction of gross sales. These sales incentives for the years ended December
31, 2018 and 2017 were approximately $3,872 and $4,004, respectively.
M) Net Loss Per Share Basic earnings (loss) per share is computed
by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding
during the year. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders
by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding
if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded
from the computation if their effect is antidilutive. For the years ended December 31, 2018
and 2017, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an
anti-dilutive effect. The potentially dilutive securities consisted of the following:
December 31, 2018 December 31, 2017
Convertible note to a related party 2,266,667 2,266,667
Warrants 6,897,277 7,325,282
Common stock equivalent of Series A Convertible Preferred Stock 37,644 37,644
Unvested restricted common stock 598,370 -
Options 3,744,404 677,500
Total 13,544,362 10,307,093
N) Advertising Costs Advertising costs are expensed as incurred
and are included in selling and marketing expense. Advertising costs aggregated $300 and $285 for the years ended December 31,
2018 and 2017, respectively.
O) Stock Compensation Expense The Company periodically issues stock
options and restricted stock awards to employees and non-employees in non-capital raising transactions for services and for financing
costs. The Company accounts for such grants issued and vesting to employees based on ASC 718, whereby the value of the award is
measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. Such grants
issued and vesting to non-employees are valued on the measurement date as determined at either a) the date at which a performance
commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Awards
granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective
period. As the awards vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value
already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance
requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded
in the period of the measurement date. The fair value of the Company’s
stock option and restricted stock grants is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions
related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future dividends.
Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based on actual
experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense
recorded in future periods.
P) Warrant Liabilities Various stock sales made by the Company
to finance operations have been accompanied by the issuance of warrants. Some of these warrant agreements contain fundamental transaction
provisions which may give rise to an obligation of the Company to pay cash to the warrant holders. For accounting purposes, in
accordance with ASC 480, Distinguishing Liabilities from Equity Fair value is estimated using the Black-Scholes-Merton
Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of
the stock options or restricted stock, and future dividends. Expense is recorded based upon the value derived from the Black-Scholes-Merton
Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could
materially affect the amount of expense recorded in future periods.
Q) Leases In February 2016, the FASB issued ASU
No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance
sheet for all leases with terms longer than twelve months. ASU 2016-02 is effective for all interim and annual reporting periods
beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees
for leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements. The Company adopted ASU 2016-02 effective
October 1, 2018. As a result, we recorded right-of-use assets aggregating $862, and lease liabilities of the same amount, as of
that date. In accordance with ASU 2016-02, the right-of-use assets are being depreciated over the life of the underlying leases,
and monthly lease payments are being recorded as reductions to the lease liability and imputed interest expense. See Note 9 for
additional information.
R) Recent Accounting Pronouncements In July 2017, the FASB issued ASU No.
2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic
815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral
for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception” (“ASU 2017-11”). ASU 2017-11 allows companies to exclude a down round feature
when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own
stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required
to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered,
and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat
the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing
basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities
will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. ASU 2017-11 is effective
for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted.
The guidance in ASU 2017-11 can be applied using a full or modified retrospective approach. The adoption of ASU 2017-11 is not
expected to have a material impact on the Company’s financial position, results of operations, and cash flows. In June 2018, the FASB issued ASU No.
2018-07, “Compensation – Stock Compensation (Topic 718); Improvements to Non-Employee Share-Based Payment Accounting”
(“ASU 2018-07”). ASU 2018-07 generally aligns the measurement and classification of share-based awards to non-employees
with that of share-based awards to employees. Non-employee equity awards will be measured at the fair value of the equity instruments
to be issued, as of the grant date, and the resulting amount will be recognized as expense over the expected or contractual term
of the award. The ASU applies to all share-based payments to nonemployees in exchange for goods or services used or consumed in
an entity’s own operations. It does not apply to instruments issued to a lender or investor in a financing transaction, or
to instruments granted when selling goods or services to customers. ASU 2018-07 is effective for annual periods beginning after
December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating
the expected impact that the standard could have on its financial statements and related disclosures. In August 2018, the FASB issued ASU
2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair
Value Measurement.” ASU 2018-13 amends certain disclosure requirements pertaining to fair value measurement, and is effective
for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of ASU 2018-13
is not expected to have a material impact on the Company’s financial position, results of operations, and cash flows. Other recent accounting pronouncements
issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the
Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future consolidated financial statements. |
