NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2023
(unaudited)
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Description of Business
BrewBilt
Manufacturing Inc., a Florida Corporation, designs and manufactures custom brewing and fermentation equipment for craft brewers dedicated
to making specialty craft beer. BrewBilt brewhouses and tanks are fabricated by highly skilled local welders using best-in-class American
stainless steel.
BrewBilt’s
proprietary systems are designed for talented brewer’s who proudly stand behind every pint of great beer. The company has spent
15 years designing brewhouse systems for hundreds of satisfied companies around the globe. Each brewery systems is customized for the
customers needs. Our engineering and design team work closely with each customer in order to assure quality assurance and industry compliance.
BrewBilt
hand-crafts high quality brewing systems that are designed around specific brewing needs. Built by talented craftsmen in Northern California
using the finest American 304 stainless steel. Every BrewBilt product features superior efficiency with an intuitive ergonomic design.
From our powerful 10-bbl Pub system up to a 120-bbl production system, BrewBilt is there every step of the way during the life of your
brewery.
Retail
dollar sales of craft beer increased 21%, to $26.8 billion, and now account for just under 27% of the $100 billion U.S. beer market (previously
$94 billion). The primary reason for the larger dollar sales increase was the shift back in beer volume to bars and restaurants from
packaged sales.
The
number of operating craft breweries continued to climb in 2021, reaching an all-time high of 9,118, including 1,886 microbreweries, 3,307
brewpubs, 3,702 taproom breweries, and 223 regional craft breweries. The total operating brewery count was 9,247, up from 9,025 in 2020.
Throughout the year, there were 646 new brewery openings.
Financial
Statement Presentation
The
audited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”).
Business
Combinations
As
per ASC 805-50 a common-control transaction does not meet the definition of a business combination because there is no
change in control over the net assets. The accounting for these transactions is addressed in the “Transactions Between Entities
Under Common Control”. The net assets are derecognized by the transferring entity and recognized by the receiving entity at the
historical cost of the parent of the entities under common control. Any difference between the proceeds transferred or received and the
carrying amounts of the net assets is recognized in equity in the transferring and receiving entities’ separate financial statements
and eliminated in consolidation. The change in accounting principle is applied retroactively for all periods presented.
Fiscal
year end
The
Company has selected December 31 as its fiscal year end.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may
be based upon amounts that differ from these estimates.
Cash
Equivalents
The
Company considers all highly liquid investments with maturities of 90 days or less from the date of purchase to be cash equivalents.
Revenue
Recognition and Related Allowances
The
Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally, this occurs with
the transfer of control of its products. Revenue is measured as the amount of consideration expected to be received in exchange for transferring
products. If the conditions for revenue recognition are not met, the Company defers the revenue and related cost of sales until all conditions
are met. As of March 31, 2023 and December 31, 2022, the Company has deferred $1,153,949 and $1,266,940, respectively, in revenue, and
$494,596 and $590,746 in cost of sales, respectively, related to customer orders in progress. These amounts are recorded as billings
in excess of revenues and earnings in excess of billings in the accompanying balance sheets.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are stated at the amount that management expects to collect from outstanding balances. Bad debts and allowances are provided
based on historical experience and management’s evaluation of outstanding accounts receivable. Management evaluates past due or
delinquency of accounts receivable based on the open invoices aged on due date basis. The allowance for doubtful accounts at March 31,
2023 and December 31, 2022 is $0.
Inventories
Inventories
consist of raw materials, work in process and finished goods. Raw materials, which principally consist of raw stainless steel, raw stainless
tubing, motors, pumps, and fittings, are stated at the lower of cost, determined on the first-in, first-out basis, or net realizable
value. As of March 31, 2023 and December 31, 2022, the Company has inventory of $178,613 and $186,149, respectively.
Capitalized
distribution fees
The
Company records its intangible assets at cost in accordance with ASC 350, Intangibles – Goodwill and Other. The Company reviews
the intangible assets for impairment on an annual basis or if events or changes in circumstances indicate it is more likely than not
that they are impaired. These events could include a significant change in the business climate, legal factors, a decline in operating
performance, competition, sale, or disposition of a significant portion of the business, or other factors. If the review indicates the
impairment, an impairment loss would be recorded for the difference of the value recorded and the new value. For the three months ended
March 31, 2023, and year ended December 31, 2022, there were no impairment losses recognized for intangible assets. The Company amortizes
the capitalized distribution fees over the five-year term of the underlying distribution agreement.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the
forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined
to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets
of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature
of the assets. For the three months ended March 31, 2023 and the year ended December 31, 2022, there were no impairment losses recognized
for long-lived assets.
Warranty
The
Company is a manufacturer of products which are shipped to our customers directly from the Company. For products that are made from raw
materials, the Company offers a 6-year limited warranty. The parts provided by outside vendors as finished goods that are added to a
system produced by the Company as components, have a manufacturers’ warranty that is passed on to the end user of the complete
system. To date, BrewBilt has spent less than $5,000 over the past 5 years for repairs (under warranty) on products they have built,
with most of the costs going to cover travel and lodging expenses. As of March 31, 2023 and December 31, 2022, the Company has recorded
a liability of $5,000 and $5,000, respectively, for warranties, which is included in accrued liabilities in the accompanying balance
sheet.
Accounts
Payable and Accrued Expenses
Accounts
payable and accrued expenses are carried at amortized cost and represent liabilities for goods and services provided to the Company prior
to the end of the fiscal year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase
of these goods and services.
Fair
Value of Financial Instruments
Fair
value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction
between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The
fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions
specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our
own credit risk.
In
addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy
for valuation inputs is expanded. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in
measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, and which is determined
by the lowest level input that is significant to the fair value measurement in its entirety.
These
levels are:
Level
1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level
2 - inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments
in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market
or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level
3 - inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would
use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing
models, discounted cash flow models, and similar techniques.
Financial
assets and liabilities measured at fair value on a recurring basis:
Summary of the fair value of our derivative liabilities
| | |
Input | | |
March 31, 2023 | | |
December 31, 2022 | |
| | |
Level | | |
Fair Value | | |
Fair Value | |
| Derivative Liability | |
| 3 | | |
$ | 1,004,921 | | |
$ | 1,129,846 | |
| Total Financial Liabilities | |
| | | |
$ | 1,004,921 | | |
$ | 1,129,846 | |
In
management’s opinion, the fair value of convertible notes payable and advances payable is approximate to carrying value as the
interest rates and other features of these instruments approximate those obtainable for similar instruments in the current market. Unless
otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, exchange or credit risks arising
from these financial instruments. As of March 31, 2023 and December 31, 2022, the balances reported for cash, accounts receivable, prepaid
expenses, accounts payable, and accrued liabilities, approximate the fair value because of their short maturities.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815 “Derivatives
and Hedging”. ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their
host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances in
which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic
characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the
host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair
value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would
be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed
to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”
ASC
815-40 “Derivatives and Hedging - Contracts in Entity’s Own Equity” provides that, among other things, generally, if
an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset
or a liability.
Debt
issuance costs and debt discounts
Debt
issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective
interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying consolidated balance sheets.
Income
Taxes
The
Company records deferred taxes in accordance with FASB ASC No. 740, Income Taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets
and liabilities and loss carryforwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation
allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
As
of the date of this filing, the Company is not current in filing their tax returns. The last return filed by the Company was December
31, 2019, and the Company has not accrued any potential penalties or interest from that period forward. The Company will need to file
returns for the year ending December 31, 2022, 2021, and 2020, which is still open for examination.
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with ASC Topic 718-10, Compensation-Stock Compensation and ASC Subtopic 505-50,
Equity-Based Payments to Non-Employees. Stock-based compensation expense recognized during the requisite services period is based on
the value of share-based payment awards after reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and
are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
During
the three months ended March 31, 2023 and 2022, the Company had stock-based compensation expense recognized in its statements of operations
of $759,000 and $200,000, respectively.
Basic
and Diluted Loss Per Share
In
accordance with ASC Topic 280 – “Earnings Per Share”, the basic loss per common share is computed by dividing net loss
available to common stockholders by the weighted average number of common shares outstanding during the period after giving retroactive
effect to the reverse stock splits affected on April 28, 2022 and March 23, 2023 (see Note 17). Diluted loss per common share is computed
similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
Recent
Accounting Pronouncements
Although
there were new accounting pronouncements issued or proposed by the FASB during the three months ending March 31, 2023 and through the
date of filing of this report, the Company does not believe any of these accounting pronouncements has had or will have a material impact
on its financial position or results of operations.
NOTE
2 – GOING CONCERN
The
accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of March 31, 2023, the
Company has a shareholders’ deficit of $18,149,260 since its inception, working capital deficit of $4,103,368, negative cash flows
from operations, and has limited business operations, which raises substantial doubt about the Company’s ability to continue as
going concern. The ability of the Company to meet its commitments as they become payable is dependent on the ability of the Company to
obtain necessary financing or achieving a profitable level of operations. There is no assurance the Company will be successful in achieving
these goals.
The
Company does not have sufficient cash to fund its desired production for the next 12 months. The Company has arranged financing and intends
to utilize the cash received to cover ongoing operational expenses. The Company plans to seek additional financing if necessary, in private
or public equity offering(s) to secure future funding for operations. There can be no assurance the Company will be successful in raising
additional funding. If the Company is not able to secure additional funding, the implementation of the Company’s business plan
will be impaired. There can be no assurance that such additional financing will be available to the Company on acceptable terms or at
all.
NOTE
3 – PREPAID EXPENSES
Prepaid
fees represent amounts paid in advance for future contractual benefits to be received. Contracting expenses paid in advance are recorded
as a prepaid asset and then amortized to the statements of operations when services are rendered, or over the life of the contract using
the straight-line method.
As
of March 31, 2023 and December 31, 2022, prepaid expenses consisted of the following:
Schedule of Prepaid Expenses
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Prepaid insurance expenses | |
$ | 4,728 | | |
$ | 12,663 | |
| Prepaid legal fees | |
| 5,000 | | |
| — | |
| Prepaid Expense | |
$ | 9,728 | | |
$ | 12,663 | |
NOTE
4 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following at March 31, 2023 and December 31, 2022:
Schedule of Property and Equipment
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Computer Equipment | |
$ | 23,876 | | |
$ | 23,876 | |
| Leasehold Improvements | |
| 131,890 | | |
| 131,890 | |
| Machinery | |
| 352,187 | | |
| 352,187 | |
| Software | |
| 23,183 | | |
| 23,183 | |
| Vehicles | |
| 6,717 | | |
| 6,717 | |
| Property, Plant and Equipment, Gross | |
| 537,853 | | |
| 537,853 | |
| Less accumulated amortization | |
| (23,183 | ) | |
| (23,183 | ) |
| Less accumulated depreciation | |
| (325,332 | ) | |
| (316,687 | ) |
| Property, Plant and Equipment, Net | |
$ | 189,338 | | |
$ | 197,983 | |
During
the three months ended March 31, 2023, the company recorded fixed assets additions of $0 and fixed asset proceeds of $0. Depreciation
and amortization expenses of $8,645 and $16,325 were recorded to the statement of operations for the three months ended March 31, 2023
and 2022, respectively.
NOTE
5 – LEASES
The
Company adopted the new lease guidance effective January 1, 2019 using the modified retrospective transition approach, applying
the new standard to all of its leases existing at the date of initial application which is the effective date of adoption. Consequently,
financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods
before January 1, 2019. We elected the package of practical expedients which permits us to not reassess (1) whether any expired
or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) any initial direct
costs for any existing leases as of the effective date. We did not elect the hindsight practical expedient which permits entities to
use hindsight in determining the lease term and assessing impairment. The adoption of the lease standard did not change our previously
reported consolidated statements of operations and did not result in a cumulative catch-up adjustment to opening equity.
The
interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing
rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar
economic environment. In calculating the present value of the lease payments, the Company elected to utilize its incremental borrowing
rate based on the remaining lease terms as of the January 1, 2019 adoption date.
Operating
Leases
Operating
lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over
the lease term at the commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives
and initial direct costs incurred, if any. Our lease terms may include options to extend or terminate the lease when it is reasonably
certain that we will exercise that option. Our lease has a remaining lease term of 2.75 years.
The
Company has elected the practical expedient to combine lease and non-lease components as a single component. The lease expense
is recognized over the expected term on a straight-line basis. Operating leases are recognized on the balance sheet as right-of-use assets,
current operating lease liabilities and non-current operating lease liabilities.
The
new standard also provides practical expedients and certain exemptions for an entity’s ongoing accounting. We have elected the
short-term lease recognition exemption for all leases that qualify. This means, for those leases where the initial lease term is one
year or less or for which the ROU asset at inception is deemed immaterial, we will not recognize ROU assets or lease liabilities. Those
leases are expensed on a straight-line basis over the term of the lease.
On
January 1, 2020, the Company entered into a standard office lease for approximately 8,000 square feet of space, located in the Wolf Creek
Industrial Building at 110 Spring Hill Dr. #10 Grass Valley, CA 95945. The lease has a term of five years, from January 1, 2020 through
December 31, 2025, with a monthly rent of $4,861.
As
of March 31, 2023 and December 31, 2022, ROU assets and lease liabilities related to our operating lease is as follows:
Schedule of Right of use of assets and lease liabilities
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Right-of-use assets | |
$ | 146,037 | | |
$ | 158,021 | |
| Current operating lease liabilities | |
| 50,005 | | |
| 49,171 | |
| Non-current operating lease liabilities | |
| 96,032 | | |
| 108,850 | |
The
following is a schedule, by years, of future minimum lease payments required under the operating lease:
Schedule of futue minimum lease payments
| Years Ending | |
| |
| December 31, | |
Operating Lease | |
| 2023 | |
| 43,751 | |
| 2024 | |
| 58,334 | |
| 2025 | |
| 58,334 | |
| Total | |
| 160,419 | |
| Less imputed interest | |
| 14,382 | |
| Total liability | |
$ | 146,037 | |
NOTE
6 – INTANGIBLES
On
August 20, 2021, the company entered into an Exclusive Distribution Agreement with South Pacific Traders Oy. Pursuant to the agreement,
the company issued 50,000 Series A Convertible Preferred stock at $10 per share. South Pacific Traders will market BrewBilt Manufacturing
equipment to the European Community and United Kingdom. Management determined that the 50,000 Series A Convertible Preferred to be issued
as consideration for the exclusive distribution agreement is a finite-lived intangible asset and will be amortized over the five year
term of the agreement.
On
January 17, 2022, the company issued 50,000 shares, and $500,000 was reclassified from Convertible Stock Payable to Series A Convertible
Preferred Stock. During the three months ending March 31, 2023 and 2022, the company amortized $25,000 and $25,000, respectively, of
the capitalized distribution fees to the statement of operations.
NOTE
7 – ACCRUED LIABILITIES
As
of March 31, 2023 and December 31, 2022, accrued liabilities were comprised of the following:
Schedule of Accrued Liabilities
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Accrued liabilities | |
| | | |
| | |
| Accrued wages | |
$ | 31,294 | | |
$ | 31,294 | |
| Credit card | |
| 7,330 | | |
| 7,295 | |
| Payroll taxes | |
| 203,368 | | |
| 163,384 | |
| Sales tax payable | |
| 99,030 | | |
| 99,030 | |
| Warranty | |
| 5,000 | | |
| 5,000 | |
| Total accrued expenses | |
$ | 346,022 | | |
$ | 306,003 | |
NOTE
8 – BILLINGS IN EXCESS OF REVENUE AND EARNINGS IN EXCESS OF BILLINGS
Billings
in excess of revenue is related to contracted amounts that have been invoiced to customers for which remaining performance obligations
must be completed before the Company can recognize the revenue. Earnings in excess of billings is related to the cost of sales associated
with the customer jobs that are incomplete.
Changes
in unearned revenue for the three months ended March 31, 2023 and the year ended December 31, 2022 were as follows:
Schedule
of Changes in Unearned Revenues
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Unearned revenue, beginning of the period | |
$ | 1,266,940 | | |
$ | 1,104,923 | |
| Billings in excess of revenue additions | |
| 239,350 | | |
| 1,565,019 | |
| Recognition of revenue | |
| (352,341 | ) | |
| (1,403,002 | ) |
| Unearned revenue, end of the period | |
$ | 1,153,949 | | |
$ | 1,266,940 | |
As
of March 31, 2023 and December 31, 2022, the Company has recorded $494,596 and $590,746, respectively, in earnings in excess of billings
for the cost of sales related to customer orders in progress.
NOTE
9 – CONVERTIBLE NOTES PAYABLE
As
of March 31, 2023 and December 31, 2022, convertible notes payable were comprised of the following:
Schedule
of Convertible Notes Payable
| | |
Original | | |
Original | |
Due | |
Interest | |
Conversion | |
March
31, | | |
December
31, | |
| | |
Note
Amount | | |
Note
Date | |
Date | |
Rate | |
Rate | |
2023 | | |
2022 | |
| 1800
Diagonal Lending | |
| 54,250 | | |
7/26/2022 | |
7/26/2023 | |
10% | |
Variable | |
$ | — | | |
$ | 54,250 | |
| Coventry
Enterprises | |
| 200,000 | | |
6/9/2022 | |
6/9/2023 | |
10% | |
Variable | |
| 240,000 | | |
| — | |
| Emerging
Corp Capital | |
| 110,000 | | |
10/31/2018 | |
10/31/2019 | |
24% | |
Variable | |
| — | | |
| 110,000 | |
| Fourth
Man | |
| 110,000 | | |
10/3/2022 | |
10/3/2023 | |
12% | |
0.09 | |
| 110,000 | | |
| 110,000 | |
| Mammoth
Corp | |
| 33,000 | | |
11/19/2020 | |
8/19/2021 | |
18% | |
Variable | |
| 33,000 | | |
| 33,000 | |
| Mammoth
Corp | |
| 60,000 | | |
12/30/2021 | |
12/30/2022 | |
18% | |
Variable | |
| 60,000 | | |
| 60,000 | |
| Mammoth
Corp | |
| 26,800 | | |
03/21/22 | |
12/21/22 | |
18% | |
Variable | |
| 28,600 | | |
| 28,600 | |
| Mammoth
Corp | |
| 20,000 | | |
2/27/2023 | |
11/27/2023 | |
0% | |
Variable | |
| 20,000 | | |
| — | |
| Mast
Hill Fund | |
| 550,000 | | |
10/6/2021 | |
10/6/2022 | |
16% | |
135 | |
| 393,160 | | |
| 422,387 | |
| Mast
Hill Fund | |
| 65,000 | | |
8/8/2022 | |
8/8/2023 | |
12% | |
0.75 | |
| 15,383 | | |
| 65,000 | |
| Pacific
Pier Capital | |
| 28,000 | | |
2/27/2023 | |
2/27/2024 | |
12% | |
0.015 | |
| 28,000 | | |
| — | |
| Tri-Bridge
Ventures | |
| 240,000 | | |
5/6/2021 | |
5/6/2022 | |
10% | |
0.001 | |
| 202,599 | | |
| 207,998 | |
| | |
| | | |
| |
| |
| |
| |
$ | 1,130,742 | | |
$ | 1,091,235 | |
| Debt
discount | |
| (135,778 | ) | |
| (97,853 | ) |
| Financing
costs/Original issue discount | |
| (26,903 | ) | |
| (26,844 | ) |
| Convertible
notes payable, net of discount | |
$ | 968,061 | | |
$ | 966,538 | |
During
the three months ending March 31, 2023, the Company received proceeds from new convertible notes of $35,700 and reclassified a promissory
note in the amount of $200,000 to convertible notes payable due to the default terms. The default on the promissory note resulted in
a default penalty of $40,000, which was recorded to the statement of operations. The Company recorded cash payments of $13,650 and conversions
of $124,843 of convertible note principal. Convertible note principal in the amount of $110,000 was forgiven by a note holder, and the
Company recorded a gain on forgiveness of debt of $110,000 to the statement of operations. The Company recorded loan fees on new convertible
notes of $12,300, which increased the debt discounts recorded on the convertible notes during the three months ending March 31, 2023.
Some of the Company’s convertible notes have a conversion rate that is variable, and therefore, the Company has accounted for their
conversion features as derivative instruments (see Note 11). The Company also recorded amortization of $271,926 on their convertible
note debt discounts and loan fees. As of March 31, 2023, the convertible notes payable are convertible into 96,309,110 shares of the
Company’s common stock.
During
the three months ended March 31, 2023, the Company recorded interest expense of $54,898, conversions of $21,520 and conversion fees of
$5,250 on its convertible notes payable. The Company transferred $20,000 in accrued interest from a promissory note that was reclassified
as a convertible promissory note due to default. Convertible note interest in the amount of $106,309 was forgiven by note holders, and
the Company recorded a gain on forgiveness of debt of $106,309 to the statement of operations. As of March 31, 2023, the accrued interest
balance was $128,809.
As
of March 31, 2023, we have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions
and activities.
NOTE
10 – PROMISSORY NOTES PAYABLE
As
of March 31, 2023 and December 31, 2022, promissory notes payable were comprised of the following:
Schedule
of Promissory Notes Payable
| | |
Original | | |
Original | |
Due | |
Interest | |
March 31, | | |
December 31, | |
| | |
Note Amount | | |
Note Date | |
Date | |
Rate | |
2023 | | |
2022 | |
| Auctus Fund, LLC | |
$ | 50,000 | | |
1/5/2021 | |
1/5/2022 | |
12% | |
$ | 50,000 | | |
$ | 50,000 | |
| Auctus Fund, LLC | |
| 75,000 | | |
7/15/2021 | |
7/15/2022 | |
12% | |
| 75,000 | | |
| 75,000 | |
| Auctus Fund, LLC | |
| 100,000 | | |
9/14/2021 | |
9/14/2022 | |
12% | |
| 100,000 | | |
| 100,000 | |
| Coventry Enterprises, LLC | |
| 200,000 | | |
6/9/2022 | |
6/9/2023 | |
10% | |
| — | | |
| 200,000 | |
| | |
| | | |
| |
| |
| |
$ | 225,000 | | |
$ | 425,000 | |
| Financing costs/Original issue discount | |
| — | | |
| (13,151 | ) |
| Promissory notes payable, net of discount | |
$ | 225,000 | | |
$ | 411,849 | |
On
January 5, 2021, the Company received funding pursuant to a promissory note in the amount of $50,000, of which, $39,000 was received
in cash and $11,000 was recorded as transaction fees. The note bears interest of 12% (increases to 16% per annum upon an event of default)
and matures on January 5, 2022. As of December 31, 2022, the company has amortized $11,000 of the financing costs to the statement of
operations. As of March 31, 2023, the note has a principal balance of $50,000 and accrued interest of $15,863.
On
July 15, 2021, the Company received funding pursuant to a promissory note in the amount of $75,000, of which $62,500 was received in
cash and $12,500 was recorded as transaction fees. The note bears interest of 12% (increases to 16% per annum upon an event of default)
and matures on July 15, 2022. As of December 31, 2022, the company has amortized $12,500 of the financing costs to the statement of operations.
As of March 31, 2023, the note has a principal balance of $75,000 and accrued interest of $17,515.
On
September 14, 2021, the Company received funding pursuant to a promissory note in the amount of $100,000, of which, $82,500 was received
in cash and $17,500 was recorded as transaction fees. The note bears interest of 12% (increases to 16% per annum upon an event of default)
and matures on September 14, 2022. As of December 31, 2022, the company has amortized $17,500 of the financing costs to the statement
of operations. As of March 31, 2023, the note has a principal balance of $100,000 and accrued interest of $20,619.
On
June 9, 2022, the Company received funding pursuant to a promissory note in the amount of $200,000, of which $170,000 was received in
cash and $30,000 was recorded as transaction fees. The note bears interest of 10% (increases to 18% per annum upon an event of default),
which is guaranteed and earned in full as of the issue date. The note matures on June 9, 2023. As of March 31, 2023, the company has
amortized $30,000 of the financing costs to the statement of operations. On January 24, 2023, the Company defaulted on the note, and
pursuant to the terms, the note became convertible, and the company reclassed $200,000 in principal and $20,000 in accrued interest to
convertible notes payable.
NOTE
11 – DERIVATIVE LIABILITIES
During
the three months ended March 31, 2023, the Company valued the embedded conversion feature of the convertible notes and warrants. The
Company uses the Black-Scholes option pricing model to estimate fair value for those instruments convertible into common shares at inception,
at conversion or extinguishment date, and at each reporting date.
The
following table represents the Company’s derivative liability activity for the embedded conversion features for the three months
ended March 31, 2023:
Schedule
of Activity of Derivative Liabilities
| | |
Notes | | |
Warrants | | |
Total | |
| Balance, beginning of period | |
$ | 1,088,633 | | |
$ | 41,213 | | |
$ | 1,129,846 | |
| Initial recognition of derivative liability | |
| 1,986,023 | | |
| 28,046 | | |
| 2,014,069 | |
| Derivative settlements | |
| (1,168,774 | ) | |
| (25,041 | ) | |
| (1,193,815 | ) |
| Loss (gain) on derivative liability valuation | |
| (915,141 | ) | |
| (30,038 | ) | |
| (945,179 | ) |
| Balance, end of period | |
$ | 990,741 | | |
$ | 14,180 | | |
$ | 1,004,921 | |
Convertible
Notes
The
fair value at the commitment date for the convertible notes and the revaluation dates for the Company’s derivative liabilities
were based upon the following management assumptions as of March 31, 2023:
Schedule of Company’s derivative liabilities upon management assumption
| | |
Valuation date |
| Expected dividends | |
0% |
| Expected volatility | |
231.04% - 406.94% |
| Expected term | |
.01 - 1 year |
| Risk free interest | |
4.17% - 5.15% |
Warrants
We
account for common stock purchase warrants as derivative liabilities and debt issuance costs on the balance sheet at fair value, and
changes in fair value during the periods presented in the statement of operations, which is revalued at each balance sheet date subsequent
to the initial issuance of the warrant.
The
fair value at the commitment date for the warrants and the revaluation dates for the Company’s derivative liabilities were based
upon the following management assumptions as of March 31, 2023:
Schedule of Company’s derivative liabilities upon management assumption
| | |
Valuation date |
| Expected dividends | |
0% |
| Expected volatility | |
539.57% - 2,556.65% |
| Expected term | |
2.47
– 5
years |
| Risk free interest | |
3.71% - 4.17% |
NOTE
12 – WARRANTS
A
summary of warrant activity for the three months ended March 31, 2023 is as follows:
Schedule
of Warrant Activity
| | |
| | |
| | |
Weighted-Average | | |
| |
| | |
| | |
Weighted-Average | | |
Remaining | | |
Aggregate | |
| Warrants | |
Shares | | |
Exercise Price | | |
Contractual Term | | |
Intrinsic Value | |
| Outstanding at December 31, 2022 | |
| 524,841 | | |
$ | 1.99 | | |
| 4.66 | | |
$ | — | |
| Granted | |
| 466,667 | | |
| — | | |
| | | |
| | |
| Exercised | |
| -50,452 | | |
| — | | |
| | | |
| | |
| Forfeited or expired | |
| 0 | | |
| — | | |
| | | |
| | |
| Outstanding at March 31, 2023 | |
| 941,055 | | |
$ | 0.8906 | | |
| 4.68 | | |
$ | — | |
| Exercisable at March 31, 2023 | |
| 941,055 | | |
$ | 0.8906 | | |
| 4.68 | | |
$ | — | |
The
aggregate intrinsic value in the preceding tables represents the total pre-tax intrinsic value, based on options with an exercise price
that is higher than the Company’s market stock price of $0.0143 on March 31, 2023.
NOTE
13 – RELATED PARTY TRANSACTIONS
Officer
and Director Agreements
On
January 1, 2023, the Company and Jef Lewis entered
into a new Employee Agreement that includes the issuance of 15,000 Preferred
Series A shares, and an annual salary of $250,000.
Unpaid wages will accrue interest at 6% per annum and may be converted to Preferred Series A stock of the company at equal value and
under the conversion guidelines of the Certificate of designation for Preferred Series A stock. Pursuant to this the
agreement, the Company will issue $150,000 in Convertible Preferred Series A stock. As of the date of the report the shares have not
been issued and are reported as Convertible preferred stock payable on the balance sheet.
On
January 1, 2023, the Company and Bennett Buchanan entered
into a new Employee Agreement that includes the issuance of 15,000 Preferred
Series A shares, and an annual salary of $250,000.
Unpaid wages will accrue interest at 6% per annum and may be converted to Preferred Series A stock of the company at equal value and
under the conversion guidelines of the Certificate of designation for Preferred Series A stock. Pursuant to this the
agreement, the Company will issue $150,000 in Convertible Preferred Series A stock. As of the date of the report the shares have not
been issued and are reported as Convertible preferred stock payable on the balance sheet.
On
January 1, 2023, the Company entered into a Directors Agreement with Jef Lewis for a term of one year. In exchange for serving in
this capacity, the Company will issue 15,000 shares
of Convertible Preferred Series A stock at a price of $10 per share. As of the date of the report the shares have not been
issued and are reported as Convertible preferred stock payable on the balance sheet.
On
January 1, 2023, the Company entered into a Directors Agreement with Sam Berry
for a term of one year. In exchange for serving
in this capacity, the Company will issue 15,000
shares of Convertible Preferred Series A stock
at a price of $10 per share. As of the date of the report the shares have not been issued and are reported as Convertible preferred stock
payable on the balance sheet.
On
January 1, 2023, the Company entered into a Directors Agreement with Bennett Buchanan for a term of one year. In exchange for
serving in this capacity, the Company will issue 15,000 shares
of Convertible Preferred Series A stock at a price of $10 per share. As of the date of the report the shares have not been
issued and are reported as Convertible preferred stock payable on the balance sheet.
Consulting
Agreements
On
June 19, 2019, the Company entered into a Consulting Agreement with Mr. Samuel Berry. The agreement is for a term of one year and
has been renewed each year upon mutual consent. Mr. Berry will receive an annual salary of $50,000, payable in quarterly installments
at $12,500 per quarter. As of December 31, 2022, Mr. Berry had an unpaid balance of $153,167. During
the three months ended March 31, 2023, the Company accrued $12,500 in fees in connection to his agreement. As of March 31, 2023, the
Company owed Mr. Berry $165,667 in fees.
Advances
During
the three months ended March 31, 2023 and the year ended December 31, 2022, $0 and $14,237, respectively, was advanced to the company
by Jef Lewis.
BrewBilt
Brewing Company
BrewBilt
Brewing Company works closely with BrewBilt Manufacturing Inc., which is also located in Grass Valley, California, and led by CEO Jef
Lewis. BrewBilt Manufacturing is supplying all necessary equipment to BrewBilt Brewing for its craft beer production.
During
the years ending December 31, 2022 and December 31, 2021, Brewbilt Brewing Company made payments of $485,209 and $450,000, respectively,
to BrewBilt Manufacturing for fabrication of a brewery system. As of December 31, 2022, the majority of the brewing equipment was completed
and delivered to BrewBilt Brewing. The equipment that was delivered and put into use has a sales price of $1,086,246, which was recognized
as related party sales on the statement of operations on the 10-K financial statements.
During
the three months ended March 31, 2023, the company delivered equipment in the amount of $32,856 to BrewBilt Brewing which has been recognized
as related party sales on the statement of operations.
The
Company anticipates the remaining equipment will be complete and delivered within three to six months.
NOTE
14 – CONVERTIBLE PREFERRED STOCK
Series
A Convertible Preferred Stock
On
July 1, 2019, the Company filed a Certificate of Amendment to increase the number of authorized Series A Convertible Preferred Stock
to 30,000,000, with a par value of $0.001. Each share of Convertible Preferred Series A Stock shall have a value of $10 per
share and will convert into common stock at the closing price of the common stock on the date of conversion. The Series A
stock shall have no voting rights on corporate matters, unless and until the Series A shares are converted into Common Shares, at which
time they will have the same voting rights as all Common Shareholders have; their consent shall not be required for taking any corporate
action.
On
March 30, 2023, Jef Lewis converted 8,000 shares of Series A Convertible Preferred stock valued at $80,000, in to 80,000,000 common shares.
The issuance resulted in a loss on conversion of $944,000 based on the market price of the stock on that date, which was recorded to
the statement of operations.
During
the three months ended March 31, 2023, 3,200 shares of Series A Convertible Preferred stock were converted to 4,000,000 common shares
in accordance with the conversion terms. The issuances resulted in a loss on conversion of $25,200 based on the market price of the stock
on the date of issuance, which was recorded to the statement of operations.
The
Series A Convertible Preferred Stock has been classified outside of permanent equity and liabilities since it embodies a conditional
obligation that the Company may settle by issuing a variable number of equity shares and the monetary value of the obligation is based
on a fixed monetary amount known at inception. Each share of the Series A Convertible Preferred Stock has a fixed value of $10 per share,
has no voting rights, and is convertible into common stock at closing market price on the date of conversion. The Company has recorded
$13,828,520, which represents 1,382,852 Series A Convertible Preferred Stock at $10 per share, issued and outstanding as of March 31,
2023, outside of permanent equity and liabilities.
Preferred
Stock Payable
On
January 1, 2023, the company agreed to issue 15,000 Convertible Series A shares at $10 per share to Jef Lewis and Bennett Buchanan, pursuant
to Employee Agreements.
On
January 1, 2023, the company agreed to issue 15,000 Convertible Series A shares at $10 per share to Jef Lewis, Sam Berry, and Bennett
Buchanan, pursuant to Directors Agreements.
During
the three months ended March 31, 2023, the company agreed to issue 900 Convertible Series A shares at $10 per share to Christopher Bullock,
pursuant to a Consulting Agreement.
NOTE
15 – PREFERRED STOCK
On
March 28, 2017, the Company filed an amendment to its articles of incorporation designating 20,000 shares of its authorized preferred
stock, par value $0.001 as Series B Voting Preferred Stock. The Series B Voting Preferred Stock shall have the right to vote
the shares on any matter requiring shareholder approval on the basis of 4 times the votes of all the issued and outstanding shares of
common stock, as well as any issued and outstanding preferred stock.
On
November 22, 2019, President Jef Lewis was issued 1,000 Preferred Series B Control Shares, pursuant to his employee agreement dated November
22, 2019.
As
of March 31, 2023, 1,000 Series B Preferred shares were authorized, of which 1,000 Series B shares were issued and outstanding.
NOTE
16 – COMMON STOCK
On
December 1, 2022, the Company approved the authorization of a one for three hundred reverse stock split of the Company’s outstanding
shares of common stock. The reverse split was effective on March 23, 2023, and the financial statements have been retroactively adjusted
to take this into account for all periods presented.
On
March 30, 2023, Jef Lewis converted 8,000 shares of Series A Convertible Preferred stock valued at $80,000, in to 80,000,000 common shares.
The issuance resulted in a loss on conversion of $944,000 based on the market price of the stock on that date, which was recorded to
the statement of operations.
During
the three months ended March 31, 2023, 3,200 shares of Series A Convertible Preferred stock were converted to 4,000,000 common shares
in accordance with the conversion terms. The issuances resulted in a loss on conversion of $25,200 based on the market price of the stock
on the date of issuance, which was recorded to the statement of operations.
During
the three months ended March 31, 2023, warrant holders exercised the warrants and the Company issued 416,666 shares of common stock through
a cashless exercise of the warrants in accordance with the conversion terms.
During
the three months ended March 31, 2023, the holders of a convertible notes converted $124,843 of principal, $21,520 of accrued interest
and $5,250 in conversion fees into 9,602,210 shares of common stock. The common stock was valued at $153,654 based on the market price
of the Company’s stock on the date of conversion, and a loss on conversion of $7,291 was recorded to the statement of operations.
As
of March 31, 2023, 30,000,000,000 were authorized, of which 100,809,977 shares are issued and outstanding.
NOTE
17 – INCOME TAX
Deferred
income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income
tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect
when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on
anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities
and their respective tax bases.
The
deferred tax asset and the valuation allowance consist of the following at March 31, 2023:
Schedule
of Deferred Tax Assets and Valuation Allowance
As
of the date of this filing, the Company is not current in filing their tax returns. The last return filed by the Company was December
31, 2019, and the Company has not accrued any potential penalties or interest from that period forward. The Company will need to file
returns for the year ending December 31, 2022, 2021 and 2020, which is still open for examination.
NOTE
18 – COMMITMENTS AND CONTINGENCIES
Consulting
Agreement
On
August 1, 2022, the Company entered into a Consulting Agreement with Christopher Bullock as a sales representative in India. The term
of the agreement is for two years and may be terminated or extended upon mutual agreement of both parties pursuant with a ninety-day
written notice. Upon execution of the agreement, the Company agreed to issue $10,000 of Series A Convertible Preferred stock to the Consultant.
The Consultant will receive a monthly fee of $3,000, to be paid Series A Convertible Preferred stock, and will receive a 2% commission
on gross sales for all products sold in India. As of March 31, 2023, the shares have not been issuance and $34,000 has been recorded
to Convertible preferred stock payable on the balance sheet.
Operating
Lease
On
January 1, 2020, the Company entered into a new office lease for space located in the Wolf Creek Industrial Building at 110 Spring Hill
Dr. #10 Grass Valley, CA 95945. The lease has a term of 5 years, from January 1, 2020 through December 31, 2025, with a monthly rent
of $4,861.
Service
Agreements
On
June 12, 2018, the Company entered into a preventative maintenance service agreement with Atlas Copco Compressions LLC. The agreement
is for a period of 5 years, at a cost of $145.13 per month.
On
October 1, 2022, the Company entered into a Platform Account Contract with SRAX, Inc, whereby the Company agreed to pay $30,000 for access
to the SRAX platform for a period of 12-months from the effective date. The platform access fee is non-cancelable and will be deemed
fully earned on the effective date of the Agreement. In addition, the Company agrees to a deliverable purchase fee for marketing advisory
services in the amount of $270,000 which is due on the effective date. All fees will be paid in Convertible Preferred Series A stock.
NOTE
19 – SUBSEQUENT EVENTS
Notes
Payable
On
April 3, 2023, the Company received funding pursuant to a convertible note for $24,000, of which $19,970 was received in cash and $4,030
was recorded as transaction fees. The note bears interest at 0% (18% per annum upon an event of default) and matures on December 3, 2023.
On
April 5, 2023, the Company received funding pursuant to a convertible note for $35,650, of which $25,020 was received in cash and $10,630
was recorded as transaction fees. The note bears interest of 15% per annum (increases to 16% upon an event of default), which is guaranteed
and earned in full as of the issue date and matures on April 5, 2024. In connection with the note, the Company executed two Common Stock
Purchase Warrants for 1,782,500 shares each. The purchase price of one share of Common Stock under these Warrants shall be equal to the
Exercise Price of $0.02 per share and expire on April 5, 2028.
Subsequent
Issuances
On
April 3, 2023, 6,200 shares of Series A Convertible Preferred stock was converted to 5,000,000 common shares in accordance with the conversion
terms.
On
April 4, 2023, the holder of a convertible note converted a total of $33,944 of principal and interest into 4,750,000 shares of our common
stock.
On
April 10, 2023, the holder of a convertible note converted a total of $41,950 of principal and interest into 2,796,666 shares of our
common stock.
On
April 10, 2023, the holder of a convertible note converted a total of $58,500 of principal and interest into 3,900,000 shares of our
common stock.
On
April 10, 2023, the holder of a convertible note converted a total of $15,479 of principal and interest into 1,031,943 shares of our
common stock.
On
April 20, 2023, 4,150 shares of Series A Convertible Preferred stock was converted to 5,000,000 common shares in accordance with the
conversion terms.
The
Company has evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no additional subsequent events to
disclose.