U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
Mark One
For
the quarterly period ended
For the transition period from ______ to _______
Commission
file number
| (Exact name of registrant as specified in its charter) |
 |
| (State
or other jurisdiction of incorporation) |
(I.R.S.
Employer Identification No.) | |||
(Address of principal executive offices)
(
(Registrant’s telephone number, including area code)
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.
| x | No | o |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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
| x | No | o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer o |
| Smaller reporting company | |
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | o | x |
As of November 8, 2023, there were shares of the registrant’s $0.0001 par value common stock issued and outstanding.
CONTENTS
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements.”. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to the financial statements and footnotes thereto included in our company’s Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission on April 10, 2023.
REPORTED IN UNITED STATES DOLLARS
3
| BREWBILT MANUFACTURING INC. |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Accounts receivable - related party | ||||||||
| Earnings in excess of billings | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Intangibles, net | ||||||||
| Right-of-use asset | ||||||||
| Security deposit | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued interest | ||||||||
| Accrued liabilities | ||||||||
| Billings in excess of revenue | ||||||||
| Current operating lease liabilities | ||||||||
| Convertible notes payable, net of discount | ||||||||
| Derivative liabilities | ||||||||
| Loans payable | ||||||||
| Liability for unissued shares | ||||||||
| Promissory notes payable, net of discount | ||||||||
| Related party liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Non-current operating lease liabilities | ||||||||
| Total Liabilities | ||||||||
| Series A convertible preferred stock: $ par value; shares authorized shares issued and outstanding at September 30, 2023 shares issued and outstanding at December 31, 2022 | ||||||||
| Convertible preferred stock payable | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, Series B: $ par value; shares authorized shares issued and outstanding at September 30, 2023 1,000 shares issued and outstanding at December 31, 2022 | ||||||||
| Common stock, $ par value; authorized shares issued and outstanding at September 30, 2023 shares issued and outstanding at December 31, 2022 (1) | ||||||||
| Additional paid in capital | ||||||||
| Retained earnings | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
| (1) |
The accompanying notes are an integral part of these financial statements
4
| BREWBILT MANUFACTURING INC. |
| CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS |
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Sales - related party | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Consulting fees | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| G&A expenses | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Other income | ||||||||||||||||
| Gain on debt settlement | ||||||||||||||||
| Gain on debt forgiveness | ||||||||||||||||
| Derivative income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on conversion of debt | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss (gain) on conversion of debt of preferred stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Net profit (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax expense | ||||||||||||||||
| Net profit (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Per share information | ||||||||||||||||
| Weighted number of common shares outstanding, basic and diluted (1) | ||||||||||||||||
| Net profit (loss) per common share | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| (1) |
The accompanying notes are an integral part of these financial statements
5
| BREWBILT MANUFACTURING INC. |
| CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (DEFICIT) |
| (1) | ||||||||||||||||||||||||||||||||||||||||
| Convertible Preferred Stock | Preferred Stock | Additional | Retained | Total | ||||||||||||||||||||||||||||||||||||
| Series A | Shares | Series B | Common Stock | Paid-In | Earnings | Shareholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Payable | Shares | Amount | Shares (1) | Amount | Capital | (Deficit) | Equity (Deficit) | |||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Conversion of convertible notes payable to stock | — | — | ||||||||||||||||||||||||||||||||||||||
| Derivative settlements | — | — | — | |||||||||||||||||||||||||||||||||||||
| Preferred stock converted to common stock | ( | ) | ( | ) | — | 84,000,000 | ||||||||||||||||||||||||||||||||||
| Preferred shares to be issued to officers and directors pursuant to agreements | — | |||||||||||||||||||||||||||||||||||||||
| Preferred shares to be issued for services | — | — | — | |||||||||||||||||||||||||||||||||||||
| Cashless warrant exercise | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||
| Rounding due to reverse stock split | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Conversion of convertible notes payable to stock | — | — | ||||||||||||||||||||||||||||||||||||||
| Derivative settlements | — | — | — | |||||||||||||||||||||||||||||||||||||
| Common stock converted to preferred stock | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Preferred stock converted to common stock | ( | ) | ( | ) | — | |||||||||||||||||||||||||||||||||||
| Rounding due to reverse stock split | — | — | — | — | — | 1 | (1 | ) | — | — | ||||||||||||||||||||||||||||||
| Net profit | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Conversion of convertible notes payable to stock | — | — | ||||||||||||||||||||||||||||||||||||||
| Derivative settlements | — | — | — | |||||||||||||||||||||||||||||||||||||
| Preferred stock converted to common stock | ( | ) | ( | ) | — | |||||||||||||||||||||||||||||||||||
| Net profit | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Convertible Preferred Stock | Preferred Stock | Additional | Retained | Total | ||||||||||||||||||||||||||||||||||||
| Series A | Shares | Series B | Common Stock | Paid-In | Earnings | Shareholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Payable | Shares | Amount | Shares (1) | Amount | Capital | (Deficit) | Equity (Deficit) | |||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Conversion of convertible notes payable to stock | — | — | ||||||||||||||||||||||||||||||||||||||
| Derivative settlements | — | — | — | |||||||||||||||||||||||||||||||||||||
| Preferred stock converted to common stock | ( | ) | ( | ) | — | |||||||||||||||||||||||||||||||||||
| Preferred stock issued for services | — | — | ||||||||||||||||||||||||||||||||||||||
| Preferred stock payable converted to convertible preferred stock | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||
| Preferred shares to be issued for services | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Conversion of convertible notes payable to stock | — | — | ||||||||||||||||||||||||||||||||||||||
| Derivative settlements | — | — | — | |||||||||||||||||||||||||||||||||||||
| Preferred stock converted to common stock | ( | ) | ( | ) | — | |||||||||||||||||||||||||||||||||||
| Common stock issued per agreement | — | — | ||||||||||||||||||||||||||||||||||||||
| Preferred stock issued to settle debt | — | — | ||||||||||||||||||||||||||||||||||||||
| Preferred stock issued for future advertising expenses | — | — | ||||||||||||||||||||||||||||||||||||||
| Rounding due to reverse stock split | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Conversion of convertible notes payable to stock | — | — | ||||||||||||||||||||||||||||||||||||||
| Derivative settlements | — | — | — | |||||||||||||||||||||||||||||||||||||
| Preferred stock converted to common stock | ( | ) | ( | ) | — | |||||||||||||||||||||||||||||||||||
| Common stock cancelled | — | — | — | — | — | ( | ) | — | — | — | — | |||||||||||||||||||||||||||||
| Preferred shares to be issued for services | — | — | — | |||||||||||||||||||||||||||||||||||||
| Cashless warrant exercise | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| (1) |
The accompanying notes are an integral part of these financial statements
6
| BREWBILT MANUFACTURING INC. |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| Nine months ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Amortization of convertible debt discount | ||||||||
| Amortization of capitalized distribution fees | ||||||||
| Change in derivative liability | ||||||||
| Preferred stock issued for services | ||||||||
| Preferred stock issued for advertising expenses | ||||||||
| Gain on debt forgiveness | ( | ) | ( | ) | ||||
| Gain on debt settlement | ( | ) | ||||||
| Depreciation and amortization of fixed assets | ||||||||
| Loss on debt conversion | ||||||||
| Loss on preferred stock conversion | ||||||||
| Penalties on notes payable | ||||||||
| Share based compensation | ||||||||
| Decrease (increase) in operating assets | ||||||||
| Accounts receivable | ( | ) | ||||||
| Accounts receivable - related party | ( | ) | ||||||
| Earnings in excess of billings | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ||||||
| Increase (decrease) in operating liabilities | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued interest | ||||||||
| Accrued liabilities | ||||||||
| Billings in excess of revenues | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Property, plant and equipment, additions | ||||||||
| Property, plant and equipment, reductions | ||||||||
| Net cash (used in) provided by investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Long term debt | ( | ) | ||||||
| Payments on convertible debt | ( | ) | ( | ) | ||||
| Proceeds from convertible debt | ||||||||
| Payments on loans payable | ( | ) | ||||||
| Proceeds from loans payable | ||||||||
| Related party liabilities | ||||||||
| Net cash provided for financing activities | ||||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Schedule of non-cash investing & financing activities | ||||||||
| Stock issued for note payable conversion | $ | $ | ||||||
| Derivative settlements | $ | $ | ||||||
| Discount from derivative | $ | $ | ||||||
| Preferred stock converted to common stock | $ | $ | ||||||
| Preferred stock issued to settle liabilities | $ | $ | ||||||
| Preferred stock issued for advertising expenses | $ | $ | ||||||
| Cashless warrant exercise | $ | $ | ||||||
| (1) | Common share amounts and per share amounts in the financial statements reflect the one-for-three hundred reverse stock split and change in par value that was made effective on March 23, 2023. |
The accompanying notes are an integral part of these financial statements
7
BREWBILT MANUFACTURING INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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.
8
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 September 30, 2023 and December 31, 2022, the Company has deferred $
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 September 30, 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 September 30, 2023 and December 31, 2022, the Company has inventory of $
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 nine months ended September 30, 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 nine months ended September 30, 2023 and the year ended December 31, 2022, there were no impairment losses recognized for long-lived assets.
9
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 September 30, 2023 and December 31, 2022, the Company has recorded
a liability of $
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:
| Input | September 30, 2023 | December 31, 2022 | ||||||||||
| Level | Fair Value | Fair Value | ||||||||||
| Derivative Liability | 3 | $ | $ | |||||||||
| Total Financial Liabilities | $ | $ | ||||||||||
10
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 September 30, 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 nine months ended September 30, 2023 and 2022, the Company had stock-based compensation expense recognized in its statements of operations of $ and $, respectively.
11
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 nine months ending September 30, 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 September 30, 2023,
the Company has a shareholders’ deficit of $
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 September 30, 2023 and December 31, 2022, prepaid expenses consisted of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Prepaid insurance expenses | $ | $ | ||||||
| Prepaid legal fees | ||||||||
| $ | $ | |||||||
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 2023 and December 31, 2022:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Computer Equipment | $ | $ | ||||||
| Leasehold Improvements | ||||||||
| Machinery | ||||||||
| Software | ||||||||
| Vehicles | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
During
the nine months ended September 30, 2023, the company recorded fixed assets additions of $
12
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 2.25 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.
13
As of September 30, 2023 and December 31, 2022, ROU assets and lease liabilities related to our operating lease is as follows:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Right-of-use assets | $ | $ | ||||||
| Current operating lease liabilities | ||||||||
| Non-current operating lease liabilities | ||||||||
The following is a schedule, by years, of future minimum lease payments required under the operating lease:
| Years Ending | ||||
| December 31, | Operating Lease | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total | ||||
| Less imputed interest | ||||
| Total liability | $ | |||
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 shares, and $
NOTE 7 – ACCRUED LIABILITIES
As of September 30, 2023 and December 31, 2022, accrued liabilities were comprised of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accrued liabilities | ||||||||
| Accrued wages | $ | $ | ||||||
| Credit card | ||||||||
| Payroll taxes | ||||||||
| Sales tax payable | ||||||||
| Warranty | ||||||||
| Total accrued expenses | $ | $ | ||||||
14
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 nine months ended September 30, 2023 and the year ended December 31, 2022 were as follows:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Unearned revenue, beginning of the period | $ | $ | ||||||
| Billings in excess of revenue additions | ||||||||
| Recognition of revenue | ( | ) | ( | ) | ||||
| Unearned revenue, end of the period | $ | $ | ||||||
As
of September 30, 2023 and December 31, 2022, the Company has recorded $
NOTE 9 – CONVERTIBLE NOTES PAYABLE
As of September 30, 2023 and December 31, 2022, convertible notes payable were comprised of the following:
| Original | Original | Due | Interest | Conversion | September 30, | December 31, | ||||||||||||||
| Note Amount | Note Date | Date | Rate | Rate | 2023 | 2022 | ||||||||||||||
| 1800 Diagonal Lending | Variable | $ | $ | |||||||||||||||||
| Coventry Enterprises | Variable | |||||||||||||||||||
| Emerging Corp Capital | Variable | |||||||||||||||||||
| Fourth Man | Variable | |||||||||||||||||||
| Mammoth Corp | Variable | |||||||||||||||||||
| Mammoth Corp | Variable | |||||||||||||||||||
| Mammoth Corp | Variable | |||||||||||||||||||
| Mammoth Corp | Variable | |||||||||||||||||||
| Mammoth Corp | Variable | |||||||||||||||||||
| Mast Hill Fund | Variable | |||||||||||||||||||
| Mast Hill Fund | Variable | |||||||||||||||||||
| Pacific Pier Capital | Variable | |||||||||||||||||||
| Pacific Pier Capital | Variable | |||||||||||||||||||
| Tri-Bridge Ventures | Variable | |||||||||||||||||||
| $ | $ | |||||||||||||||||||
| Debt discount | ( | ) | ( | ) | ||||||||||||||||
| Financing costs/Original issue discount | ( | ) | ( | ) | ||||||||||||||||
| Convertible notes payable, net of discount | $ | $ | ||||||||||||||||||
During
the nine months ending September 30, 2023, the Company received proceeds from new convertible notes of $
15
During
the nine months ended September 30, 2023, the Company recorded interest expense of $
As of September 30, 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 September 30, 2023 and December 31, 2022, promissory notes payable were comprised of the following:
| Original | Original | Due | Interest | September 30, | December 31, | |||||||||||||
| Note Amount | Note Date | Date | Rate | 2023 | 2022 | |||||||||||||
| Auctus Fund, LLC | $ | 50,000 | 1/5/2021 | 1/5/2022 | 16% | $ | 50,000 | $ | 50,000 | |||||||||
| Auctus Fund, LLC | 75,000 | 7/15/2021 | 7/15/2022 | 16% | 75,000 | 75,000 | ||||||||||||
| Auctus Fund, LLC | 100,000 | 9/14/2021 | 9/14/2022 | 16% | 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 September 30, 2023, the note has a principal balance of $50,000 and accrued interest of $19,874.
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 September 30, 2023, the note has a principal balance of $75,000 and accrued interest of $23,532.
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 September 30, 2023, the note has a principal balance of $100,000 and accrued interest of $28,701.
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 September 30, 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.
16
NOTE 11 – DERIVATIVE LIABILITIES
During the nine months ended September 30, 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 nine months ended September 30, 2023:
| Notes | Warrants | Total | ||||||||||
| Balance, beginning of period | $ | $ | $ | |||||||||
| Initial recognition of derivative liability | ||||||||||||
| Derivative settlements | ( | ) | ( | ) | ( | ) | ||||||
| Loss (gain) on derivative liability valuation | ( | ) | ( | ) | ( | ) | ||||||
| Balance, end of period | $ | $ | $ | |||||||||
Convertible Notes
| Valuation date | ||||
| Expected dividends | ||||
| Expected volatility | - | |||
| Expected term | - | |||
| Risk free interest | - | |||
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.
| Valuation date | ||||
| Expected dividends | ||||
| Expected volatility | - | |||
| Expected term | – | |||
| Risk free interest | - | |||
17
NOTE 12 – WARRANTS
| Weighted-Average | ||||||||||||||||
| Weighted-Average | Remaining | Aggregate | ||||||||||||||
| Warrants | Shares | Exercise Price | Contractual Term | Intrinsic Value | ||||||||||||
| Outstanding at December 31, 2022 (*) | $ | 4.66 | $ | — | ||||||||||||
| Granted | — | — | — | |||||||||||||
| Exercised | ( | ) | — | — | — | |||||||||||
| Forfeited or expired | — | |||||||||||||||
| Outstanding at September 30, 2023 | $ | 4.45 | $ | — | ||||||||||||
| Exercisable at September 30, 2023 | $ | 4.45 | $ | — | ||||||||||||
| (*) |
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 $0.0002 on September 30, 2023.
NOTE 13 – RELATED PARTY TRANSACTIONS
Officer and Director Agreements
Jef Lewis
On
January 1, 2023, the Company and Jef Lewis entered into a new Employee Agreement that includes the issuance of Preferred Series
A shares, and an annual salary of $
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 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.
Bennett Buchanan
On
January 1, 2023, the Company and Bennett Buchanan entered into a new Employee Agreement that includes the issuance of Preferred
Series A shares, and an annual salary of $
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 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 June 15, 2023, Mr. Buchanan submitted his resignation as a director and officer of the company.
18
Sam Berry
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 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
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 $
Advances
During the nine months ended September 30, 2023 and the year ended December 31, 2022, $33,568 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. The company’s CEO Jef Lewis is currently a director of BrewBilt Brewing. 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 nine months ended September 30, 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.
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 , with a par value of $. 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 shares of Series A Convertible Preferred stock valued at $80,000, in to 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. The company rescinded this conversion and recorded an adjustment to reverse this transaction on April 1, 2023.
During
the nine months ended September 30, 2023, shares of Series A Convertible Preferred stock were converted to common
shares in accordance with the conversion terms. The issuances resulted in a loss on conversion of $
19
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 $13,737,280, which represents 1,373,728 Series A Convertible Preferred Stock at $10 per share, issued and outstanding as of September 30, 2023, outside of permanent equity and liabilities.
Preferred Stock Payable
On January 1, 2023, the company agreed to issue 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 Convertible Series A shares at $10 per share to Jef Lewis, Sam Berry, and Bennett Buchanan, pursuant to Directors Agreements.
During the nine months ended September 30, 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 shares of its authorized preferred
stock, par value $0.001 as Series B Voting Preferred Stock.
On November 22, 2019, President Jef Lewis was issued Preferred Series B Control Shares, pursuant to his employee agreement dated November 22, 2019.
As of September 30, 2023, Series B Preferred shares were authorized, of which Series B shares were issued and outstanding.
NOTE 16 – COMMON STOCK
On March 30, 2023, Jef Lewis converted shares of Series A Convertible Preferred stock valued at $80,000, in to 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. The company rescinded this conversion and recorded an adjustment to reverse this transaction on April 1, 2023.
During the nine months ended September 30, 2023, shares of Series A Convertible Preferred stock were converted to common shares in accordance with the conversion terms. The issuances resulted in a loss on conversion of $134,612 based on the market price of the stock on the date of issuance, which was recorded to the statement of operations.
During the nine months ended September 30, 2023, warrant holders exercised the warrants and the Company issued shares of common stock through a cashless exercise of the warrants in accordance with the conversion terms.
During
the nine months ended September 30, 2023, the holders of a convertible notes converted $515,717 of principal, $100,614 of accrued interest
and $26,640 in conversion fees into shares of common stock. The common stock was valued at $524,597 based on the market price
of the Company’s stock on the date of conversion, and a loss on conversion of $
As of September 30, 2023, were authorized, of which shares are issued and outstanding.
20
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 September 30, 2023:
| September 30, | ||||
| 2023 | ||||
| Net operating loss | $ | |||
| Statutory rate | % | |||
| Expected tax recovery | ||||
| Change in valuation allowance | ( | ) | ||
| Income tax provision | $ | |||
| Components of deferred tax asset: | ||||
| Non-capital tax loss carry-forwards | ||||
| Less: valuation allowance | ( | ) | ||
| Net deferred tax asset | $ | |||
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 September 30, 2023, the shares have not been issued and $34,000 has been recorded to Convertible preferred stock payable on the balance sheet. As of March 31, 2023, the Company has terminated this agreement.
Operating Lease
On
January 1, 2020, the Company entered into a new office lease for space located in the
Service Agreements
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.
21
NOTE 19 – SUBSEQUENT EVENTS
Purchase Agreements
On October 18, 2023, Maguire and Associates LLC purchased all convertible notes from Mammoth Corporation. On that date, the Mammoth notes had a principal and interest balance of $212,243. Maguire purchased the convertible notes for 35,000 shares of Series A Convertible Preferred stock.
On November 1, 2023, Maguire and Associates LLC purchased the convertible note from Tri-Bridge Ventures, LLC, which had a principal and interest balance of $256,275. Maguire purchased the convertible note for 35,000 shares of Series A Convertible Preferred stock.
Subsequent Issuances
On
October 4, 2023, the holder of a convertible note converted a total of $
On October 5, 2023, shares of Series A Convertible Preferred stock was converted to common shares in accordance with the conversion terms.
On
October 11, 2023, the holder of a convertible note converted a total of $
On
October 12, 2023, the holder of a convertible note converted a total of $
On
October 16, 2023, the holder of a convertible note converted a total of $
On
October 16, 2023, the holder of a convertible note converted a total of $
On October 18, 2023, 35,000 shares of Series A Convertible Preferred stock was issued to settle debt.
On
October 24, 2023, the holder of a convertible note converted a total of $
The Company has evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no additional subsequent events to disclose.
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis summarizes the significant factors affecting our consolidated results of operations, financial condition, and liquidity position for the three and nine months ended September 30, 2023. This discussion and analysis should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for our year-ended December 31, 2022 and the consolidated unaudited financial statements and related notes included elsewhere in this filing. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “intends”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our 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 statemen.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results, later events, or circumstances or to reflect the occurrence of unanticipated events.
In this report unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares of our capital stock.
The management’s discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
As used in this quarterly report, the terms “we”, “us”, “our”, and “our company” means BrewBilt Manufacturing, Inc., unless otherwise indicated.
RESULTS OF OPERATIONS
Results for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022
Revenues:
The Company’s revenues were $173,614 for the three months ended September 30, 2023 compared to $118,219 for the three months ended September 30, 2022. During the nine months ending September 30, 2023 and 2022, sales of $0 and $98,302, respectively, were from a related party, BrewBilt Brewing. During the three months ended September 30, 2023, the company completed and delivered 7 jobs. One was a large job in the amount of $126,780, while the remaining 6 jobs averaged $7,772 per sale.
Cost of Sales:
The Company’s cost of sales was $126,693 for the three months ended September 30, 2023, compared to $79,455 for the three months ended September 30, 2022. There was a slight increase in the material costs in Q3 2023 compared to Q3 2022.
23
Operating Expenses:
Operating expenses consisted primarily of consulting fees, professional fees, salaries and wages, office expenses and fees associated with preparing reports and SEC filings relating to being a public company. Operating expenses for the three months ended September 30, 2023 and September 30, 2022 were $230,071 and $383,294, respectively. The decrease is due to a decrease in and general and administrative expenses and salaries and wages.
Other Income (Expense):
Other income (expense) for the three months ended September 30, 2023 and September 30, 2022 was $(1,471,213) and $642,481, respectively. Other income (expense) consisted of gains on debt forgiveness, gains on debt settlement, gains or losses on derivative valuation, losses on conversion on preferred stock to common stock and interest expense. The gain or loss on derivative valuation is directly attributable to the change in fair value of the derivative liability. Interest expense is primarily attributable the initial interest expense associated with the valuation of derivative instruments at issuance and the accretion of the convertible debentures over their respective terms. The increase in other expense primarily resulted from the fluctuation of the Company’s stock price which impacted the valuation of the derivative liabilities on the convertible debt.
Net Profit (Loss):
Net profit (loss) for the three months ended September 30, 2023 was $(1,654,363) compared with $297,951 for the three months ended September 30, 2022. The decrease in profit is primarily due to the fluctuation of the Company’s stock price which impacted the valuation of the derivative liabilities on the convertible debt.
Results for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022
Revenues:
The Company’s revenues were $880,164 for the nine months ended September 30, 2023 compared to $1,102,141 for the nine months ended September 30, 2022. During the nine months ending September 30, 2023 and 2022, sales of $32,856 and $1,056,634, respectively, were from a related party, BrewBilt Brewing. The increase in non-related party revenue is due to 4 large jobs that were completed that represented $775,677 in revenue. The sales for the nine months ended September 30, 2022 were primarily pass-through equipment, such as flow meters, whereas in 2023, the jobs included fabrication of equipment with longer production times. The decrease in related party revenue is due to a project being completed and delivered to BrewBilt Brewing in the second and third quarter of 2022.
Cost of Sales:
The Company’s cost of sales was $638,815 for the nine months ended September 30, 2023, compared to $778,325 for the nine months ended September 30, 2022.
Operating Expenses:
Operating expenses consisted primarily of consulting fees, professional fees, salaries and wages, office expenses and fees associated with preparing reports and SEC filings relating to being a public company. Operating expenses for the nine months ended September 30, 2023 and September 30, 2022 were $1,692,408 and $1,401,918, respectively. The increase is due to an increase in professional fees and salaries and wages, specifically related to stock-based compensation pursuant to officer and director agreements.
Other Expense:
Other expense for the nine months ended September 30, 2023 and September 30, 2022 was $2,286,670 and $3,008,597, respectively. Other expense consisted of losses on derivative valuation, losses on conversion on preferred stock to common stock and interest expense. The gain or loss on derivative valuation is directly attributable to the change in fair value of the derivative liability. Interest expense is primarily attributable the initial interest expense associated with the valuation of derivative instruments at issuance and the accretion of the convertible debentures over their respective terms. The decrease primarily resulted from a decrease in losses on conversions of preferred stock and a decrease in interest expenses.
Net Loss:
Net loss for the nine months ended September 30, 2023 was $3,737,729 compared with $4,086,699 for the nine months ended September 30, 2022. The decreased loss is due the decrease in other expenses.
24
Liquidity and Capital Resources
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of September 30, 2023, the Company has a shareholders’ deficit of $18,544,974 since its inception, working capital deficit of $4,524,513, 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.
| September 30, 2023 | December 31, 2022 | |||||||
| $ | $ | |||||||
| Current Assets | 895,165 | 1,209,027 | ||||||
| Current Liabilities | 5,419,678 | 5,409,983 | ||||||
| Working Capital (Deficit) | (4,524,513 | ) | (4,200,956 | ) | ||||
The overall working capital (deficit) increased from $(4,200,956) at December 31, 2022 to $(4,524,513) at September 30, 2023 due to a decrease in cash and accounts receivable and an increase in derivative liabilities and related party liabilities.
The Company requires additional capital to fully execute its marketing program and increase revenues. There can be no assurance that continued funding will be available on satisfactory terms. We intend to raise additional capital through the sale of equity, loans, or other short-term financing options.
| September 30, 2023 | September 30, 2022 | |||||||
| $ | $ | |||||||
| Cash Flows used in Operating Activities | (461,304 | ) | (537,491 | ) | ||||
| Cash Flows (used in) provided by Investing Activities | — | — | ||||||
| Cash Flows provided by Financing Activities | 374,638 | 356,263 | ||||||
| Net decrease in Cash During Period | (86,666 | ) | (181,228 | ) | ||||
During the nine months ended September 30, 2023, cash used in operating activities was $461,304 compared to $537,491 for the nine months ended September 30, 2022. The variance primarily resulted from decreases in losses on conversions, preferred stock issued for advertising and prepaid expenses.
During the nine months ended September 30, 2023, cash from (used in) investing activities was $0 compared to $0 for the nine months ended September 30, 2022.
During the nine months ended September 30, 2023, cash from financing activities was $374,638 compared to $356,263 for the nine months ended September 30, 2022. The increase in cash from financing activity is due to an increase in related party advances.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
25
Critical Accounting Policies and Estimates
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are more fully discussed in the Notes to our Financial Statements, included herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Report on Disclosure Controls and Procedures
We maintain 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 Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our president and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure.
As of the end of the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our president and chief financial officer (our principal executive officer, principal financial officer, and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president and chief financial officer (our principal executive officer, principal financial officer, and principal accounting officer) concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report. Our company is in the process of adopting specific internal control mechanisms to ensure effectiveness as we grow, and we will work to retain additional qualified individuals to ensure a proper segregation of duties. We have engaged an outside consultant to assist in adopting new measures to improve our internal controls. Future controls, among other things, will include more checks and balances and communication strategies between the management and the board, once we are able to secure additional board members, to ensure efficient and effective oversight over company activities as well as more stringent accounting policies to track and update our financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was served a complaint in the County of Nevada, State of California (Case No. CU0000567). BrewBilt Manufacturing Inc. is listed as a named defendant in this matter. The complaint involves the termination of employee Branford Samuels who was employed as a fabricator for BrewBilt Manufacturing Inc. Although the total amount of loss cannot be reasonably estimated as the complaint does not state a definitive amount of relief requested monetarily, the complaint does relate that plaintiffs’ economic loss exceeds $50,000. Thus, any current estimate as to exposure should be in excess of that amount. In addition, other possible amounts awarded such as attorney’ fees, are not possible to estimate at this time as such amount will not be disclosed until settlement discussions occur or until any post-trial motion to tax costs (if plaintiff were to prevail). It should be noted that discovery has not been completed and investigation is ongoing at this time.
26
ITEM 1A. RISK FACTORS
A smaller reporting company is not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Quarterly Issuances
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. The company rescinded this conversion and recorded an adjustment to reverse this transaction on April 1, 2023.
During the three months ended September 30, 2023, 2,511 shares of Series A Convertible Preferred stock were converted to 369,366,665 common shares in accordance with the conversion terms. The issuances resulted in a loss on conversion of $52,067 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 September 30, 2023, the holders of a convertible notes converted $136,605 of principal and interest, and $5,100 in conversion fees into 488,250,000 shares of common stock. The common stock was valued at $141,705 based on the market price of the Company’s stock on the date of conversion, and a loss on conversion of $5,100 was recorded to the statement of operations.
In respect of the aforementioned convertible loan agreement(s) and the underlying shares, as well as shares issued to a director and consultant, the Company will claim an exemption from the registration requirements of the Securities Act of 1933, as amended, for the issuance of the shares pursuant to Section 4(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transaction does not involve a public offering, the purchasers are “accredited investors” and/or qualified institutional buyers, the purchasers have access to information about the Company and its purchase, the purchasers will take the securities for investment and not resale.
Other than as disclosed above, there were no unregistered securities to report which were sold or issued by the Company without the registration of these securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements, within the period covered by this report, which have not been previously included in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
27
ITEM 6. EXHIBITS
| Exhibit Number | ||
| Description | ||
| 31.1 | Certification of the Chief Executive Officer required under Rule 13a-14(a)/15d-14(a) of the Exchange Act* | |
| 31.2 | Certification of the Chief Financial Officer required under Rule 13a-14(a)/15d-14(a) of the Exchange Act* | |
| 32.1 | Certification of the Chief Executive Officer and Chief Financial Officer required under Section 1350 of the Exchange Act* | |
| 101.INS | XBRL Instance Document* | |
| 101.SCH | XBRL Taxonomy Extension Schema* | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase* | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase* | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase* | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase* |
| * | Filed herewith |
28
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.
| BrewBilt Manufacturing Inc. | |
| Date: November 14, 2023 | By: /s/ Jef Lewis |
| Chief Executive Officer |
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.
29