UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 |
For the transition period from ______ to _______
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| (State of incorporation) | (I.R.S. Employer Identification No.) |
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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.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
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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 | |
| o | (Do not check if a smaller reporting company) | 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 13(a) of the Exchange Act. o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
As of November 15, 2022, there were shares of the registrant’s $0.0001 par value common stock issued and outstanding.
BREWBILT BREWING COMPANY
TABLE OF CONTENTS
Special Note Regarding Forward-Looking Statements
Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of BrewBilt Brewing Company (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies, and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Please note that throughout this Quarterly Report, and unless otherwise noted, the words “we,”,“BRBL,” “our,” “us,” the “Company,” refers to BrewBilt Brewing Company
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| (Formerly known as Simlatus Corporation) |
| CONDENSED BALANCE SHEETS |
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | (unaudited) | (audited) | ||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses | ||||||||
| Related party deposit | ||||||||
| Other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating right-of-use assets | ||||||||
| Security deposit | ||||||||
| Non-current assets of discontinued operations | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued wages | ||||||||
| Accrued expenses | ||||||||
| Accrued interest | ||||||||
| Convertible notes payable in default | ||||||||
| Convertible notes payable, net of discount | ||||||||
| Current operating lease liabilities | ||||||||
| Derivative liabilities | ||||||||
| Loans payable | ||||||||
| Related party liabilities | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total Current liabilities | ||||||||
| Non-current financing lease liabilities - related party | ||||||||
| Non-current operating lease liabilities | ||||||||
| Non-current related party note payable | ||||||||
| Non-current liabilities of discontinued operations | ||||||||
| Total liabilities | ||||||||
| Series A convertible preferred stock: shares authorized, par value $ shares issued and outstanding at September 30, 2022 shares issued and outstanding at December 31, 2021 (1) | ||||||||
| Convertible preferred stock payable | ||||||||
| Stockholders’ deficit: | ||||||||
| Series B preferred stock: shares authorized, par value $ shares issued and outstanding at September 30, 2022 shares issued and outstanding at December 31, 2021 | ||||||||
| Common stock: shares authorized, par value $ shares issued and outstanding at September 30, 2022 shares issued and outstanding at December 31, 2021(1) | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
| (1) |
The accompanying notes are an integral part of these financial statements
3
| BREWBILT BREWING COMPANY |
| (Formerly known as Simlatus Corporation) |
| CONDENSED STATEMENTS OF OPERATIONS |
| (Unaudited) |
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of materials | $ | |||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Depreciation | ||||||||||||||||
| G&A expenses | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Debt forgiveness | ||||||||||||||||
| Gain (loss) on settlement of debt | ||||||||||||||||
| Loss on conversion of debt | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on conversion of debt of preferred shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Derivative income (expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ||||||||||||||
| Net profit (loss) before income taxes from continuing operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax expense | ||||||||||||||||
| Net profit (loss) from continuing operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Discontinued operations (Note 3) | ||||||||||||||||
| Loss from operation of discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Total profit (loss) from discontinued operations, net of tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Net profit (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Per share information | ||||||||||||||||
| Weighted average number of common shares outstanding, basic (1) | ||||||||||||||||
| Net income (loss) per common share, basic, for continued operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Net income (loss) per common share, basic, for discontinued operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Per share information | ||||||||||||||||
| Weighted average number of common shares outstanding, diluted (1) | ||||||||||||||||
| Net income (loss) per common share, diluted, for continued operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Net income (loss) per common share, diluted, for discontinued operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| (1) |
| The accompanying notes are an integral part of these financial statements |
4
| BREWBILT BREWING COMPANY |
| (Formerly known as Simlatus Corporation) |
| CONDENSED STATEMENTS OF STOCKHOLDERS’ DEFICIT |
| (Unaudited) |
| Convertible Preferred Stock | Preferred Stock | Additional | Accumulated | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Series A (1) | Series C | Shares | Series B | Common Stock (1) | Paid-In | Earnings | Shareholders’ | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Payable | Shares | Amount | Shares | Amount | Capital | (Deficit) | Equity (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balances for December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Conversion of debt to common stock | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Convertible preferred stock converted to common stock | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Convertible preferred stock payable converted to preferred stock | — | ( | ) | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Convertible preferred shares to be issued to settle accrued wages | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Convertible preferred shares to be issued pursuant to director agreements | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Convertible preferred shares issued for services | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Cashless warrant exercise | — | — | — | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Warrant discounts | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Derivative settlements | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balances for March 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Conversion of debt to common stock | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Convertible preferred stock converted to common stock | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to securities purchase agreement | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Convertible preferred shares issued in connection with promissory note | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Convertible preferred shares issued to settle debt | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Warrant discounts | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Derivative settlements | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balances for June 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Preferred shares issued and cancelled in connection with sale and settlement of wholly owned subsidiary | — | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Deconsolidation of wholly owned subsidiary | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of debt to common stock | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Convertible preferred stock converted to common stock | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to equity purchase agreement | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Convertible preferred shares issued to directors to guarantee lease agreement | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Convertible preferred shares cancelled pursuant to settlement agreement | ( | ) | ( | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Convertible preferred shares to be issued for services | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Cashless warrant exercise | — | — | — | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Warrant discounts | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Derivative settlements | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Rounding due to reverse stock split | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balances for September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Convertible Preferred Stock | Preferred Stock | Additional | Accumulated | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series C | Shares | Series B | Common Stock (1) | Paid-In | Earnings | Shareholders’ | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Payable | Shares | Amount | Shares | Amount | Capital | (Deficit) | Equity (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balances for December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Conversion of debt to common stock | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Convertible preferred stock converted to common stock | ( | ) | ( | ) | ( | ) | ( | ) | — | |||||||||||||||||||||||||||||||||||||||
| Convertible preferred stock payable converted to preferred stock | — | ( | ) | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Preferred stock issued for services | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Derivative settlements | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Warrant discounts | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balances for March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Conversion of debt to common stock | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Derivative settlements | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Rounding due to reverse stock split | ( | ) | ( | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net profit | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balances for June 30, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Conversion of debt to common stock | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Convertible preferred stock converted to common stock | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Cashless warrant exercise | — | — | — | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Derivative settlements | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Warrant discounts | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Rounding due to reverse stock split | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Net profit | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balances for September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| (1) |
The accompanying notes are an integral part of these financial statements
5
| BREWBILT BREWING COMPANY |
| (Formerly known as Simlatus Corporation) |
| CONDENSED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| Nine months ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operations | ( | ) | ( | ) | ||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of convertible debt discount | ||||||||
| Depreciation | ||||||||
| Stock based compensation | ||||||||
| Preferred stock issued for services | ||||||||
| Imputed interest | ||||||||
| Forgiveness of debt | ( | ) | ||||||
| Loss on conversion of debt | ||||||||
| Loss on conversion of preferred shares to common stock | ||||||||
| Loss on settlement of debt | ( | ) | ||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||
| Penalties on notes payable | ||||||||
| Decrease (increase) in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Security deposits | ( | ) | ||||||
| Accrued interest | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Advances from related parties | ( | ) | ||||||
| Other current liabilities | ( | ) | ||||||
| Net cash used in continuing operating activities | ( | ) | ( | ) | ||||
| Net cash used in discontinued operating activities | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Property, plant and equipment, additions | ( | ) | ( | ) | ||||
| Deposit on equipment - related party | ( | ) | ||||||
| Net cash (used in) provided by investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Payments on convertible debt | ( | ) | ||||||
| Proceeds from convertible debt | ||||||||
| Proceeds from promissory notes | ||||||||
| Net cash (used in) provided for financing activities | ||||||||
| Net increase (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: | ||||||||
| Preferred stock issued against related party debt | $ | $ | ||||||
| Deconsolidation of wholly owned entity | $ | $ | ||||||
| Debt converted to common stock | $ | $ | ||||||
| Preferred shares cancelled | $ | $ | ||||||
| Stock issued for debt conversion | $ | $ | ||||||
| Discount from derivative | $ | $ | ||||||
| Preferred stock converted to common stock | $ | $ | ||||||
| Preferred stock issued to settle convertible debt | $ | |||||||
| Related party exchange of accrued wages for note payable | $ | $ | ||||||
| Derivative settlements | $ | $ | ||||||
| Warrant discount from debt | $ | $ | ||||||
| Cashless warrant exercise | $ | $ | ||||||
| Convertible note payable exchanged for accrued interest | $ | $ | ||||||
| Lease adoption recognition | $ | $ | ||||||
| Preferred stock payable converted to preferred stock | $ | $ | ||||||
| Fixed assets exchanged for related party accounts payable | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements
6
BREWBILT BREWING COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
BrewBilt Brewing Company (formerly Simlatus Corporation) is the parent company of wholly owned subsidiaries Satel Group Inc. and BrewBilt Brewing LLC. On July 1, 2022, the Company sold Satel Group Inc. to Richard Hylen in exchange for the debt that the Company owes him.
Satel Group is the premier provider of DirecTV to high-rise apartments, condominiums and large commercial office buildings in the San Francisco metropolitan area and is now expanding both their DirecTV and Internet services across the Bay Area. Satel’s revenues supported BrewBilt Brewing Company during construction of the brewing facility and ramp-up of craft beer revenues.
BrewBilt Brewing is an independent craft beer manufacturer offering its own line of lagers and ales with a particular focus on traditional European lagers. BrewBilt Brewing will also offer contract brewing services for other breweries in need of additional capacity as well as private label ales for restaurants and bars desiring their own house beer.
BrewBilt Brewing LLC is the entity pursuing the Type 23 Small Beer Manufacturer license from the California Alcoholic Beverage Control Board (ABC). We expect this license to be issued once brewery construction is nearing completion. BrewBilt Brewing LLC has already received our Brewers Notice from the Alcohol and Tobacco Tax and Trade Bureau (TTB).
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 custom designs and handcrafts brewing and fermentation equipment and will supply all necessary equipment to BrewBilt Brewing for our craft beer production.
BrewBilt Brewing’s ties with BrewBilt Manufacturing provide strong relationships with local suppliers of raw materials, equipment and services in California, an aggressive referral network of satisfied customers nationwide, and an Advisory Board consisting of successful business leaders who provide valuable product feedback and business expertise to management. The craft brewing and spirits industries continue to grow worldwide. California is where American craft brewing began and now has over 950 operating breweries – being centrally located in this booming market was a large draw for BrewBilt Brewing to locate its facility in the Sierra foothills.
In March of 2021, BrewBilt Brewing began design and permitting for the construction of its brewing facility in Grass Valley, California. This facility was leased by BrewBilt and is being upgraded with substantial tenant improvements to include a 20 BBL brewhouse, 20 and 40 BBL fermentation tanks, cold-storage space, and a state-of-the-art canning line. In July of 2021, BrewBilt took the opportunity to expand again by leasing additional space adjacent to the original lease.
BrewBilt Brewing began operations on June 29, 2022 with a 20-bbl batch of Party Eyes Kolsch. That first brew was released to market in both kegs and cans on July 19, followed by Jester’s Privilege IPA on July 22. The first batch of Party Eyes Kolsch sold so quickly that the Company is releasing the second batch on August 15 to satisfy customer demand. The Company’s second hoppy offering, Wizard Boots Hazy Pale Ale, will be released in the last week of August. Brain Bypass Helles, a traditional German lager, will complete its cold conditioning for release during the second week of September. This fourth style will complete BrewBilt’s “core four” year round offerings. In addition, the Company has also brewed its first seasonal beer called Royal Event Festbier, an Oktoberfest-inspired brew that was released in mid-September.
7
Reincorporation Merger Transaction
On March 24, 2021 Simlatus filed a PRE14C disclosing the merger between BrewBilt Brewing and Simlatus. Our Board of Directors and the holders of a majority of the voting power of our stockholders approved an Agreement and Plan of Merger pursuant to which the Company merged with and into BrewBilt Brewing Company, a Florida corporation and wholly owned subsidiary of the Company, which resulted in the Company’s reincorporation from the State of Nevada to the State of Florida and change in the Company’s name to BrewBilt Brewing Company (the “Reincorporation Merger”). On March 16, 2021, the date we received the consent of the holders of a majority of the voting power of our stockholders, there were 204,577 shares of common stock outstanding, 33,020 shares of our Series A Preferred Stock outstanding, 1,500 shares of our Series B Preferred Stock outstanding, and 35,583 shares of our Series C Preferred Stock outstanding. The Series A Preferred Stock and Series C Preferred Stock are non-voting. Each share of Series B Preferred Stock has the right to cast a number of votes equal to four times the votes of all of the shares of our outstanding common stock with respect to any and all matters presented to the holders of common stock for their action.
Following the Reincorporation Merger, BrewBilt Brewing Company has a greater number of authorized shares of common stock available for issuance than the Company previously had available for issuance. Although at present the Company has no commitments or agreements to issue additional shares of common stock, it desires to have additional shares available to provide additional flexibility to use its capital stock for business and financial purposes in the future.
We obtained the approval of Jeffrey Lewis, Chief Executive Officer; Bennett Buchanan, Director; Samuel Berry, Chief Operations Officer; and Richard Hylen, Chairman of the Board, to the actions described in the Information Statement. Messrs. Lewis, Berry, and Hylen collectively hold 3 shares of our common stock, 6,519 shares of Series A Preferred Stock, and all 1,500 shares of our Series B Preferred Stock, or approximately 99% of the voting power of our stockholders.
The Reincorporation Merger transaction was completed on June 11, 2021.
Settlement and Sale Transaction
On July 1, 2022, the Company executed a Settlement and Sale Agreement with our Chairman, Richard Hylen. The Company agreed to sell the wholly owned subsidiary, Satel Group, Inc. to Mr. Hylen in exchange for the debt that the Company owes him. As of June 30, 2022, this debt is inclusive of unpaid wages and interest of $264,096 and personal loans made to Satel in the amount of $304,314. The Company issued 2,406 shares of Convertible Preferred Series A stock at $268.50 per share, with a fair value of $646,011.
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”).
Reclassification
Certain prior period amounts have been reclassified to conform to current period presentation.
Fiscal Year End
The Company has selected December 31 as its fiscal year end.
Use of Estimates
The preparation of the Company’s financial statements in conformity with generally accepted accounting principles of United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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.
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Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Actual results could differ from those 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.
Discontinued Operations
In accordance with the Financial Accounting Standards Board, ASC 205-20, Presentation of Financial Statements - Discontinued Operations, the results of operations of a component of an entity or a group or component of an entity that represents a strategic shift that has, or will have, a major effect on the reporting company’s operations that has either been disposed of or is classified as held-for-sale are required to be reported as discontinued operations in a company’s consolidated financial statements. In order to be considered a discontinued operation, both the operations and cash flows of the discontinued component must have been (or will be) eliminated from the ongoing operations of the company and the company will not have any significant continuing involvement in the operations of the discontinued component after the disposal transaction. As a result of the Settlement and Sale Agreement to sell Satel Group Inc., the accompanying consolidated financial statements reflect the activity related to the sale of its previously wholly owned subsidiary as discontinued operations.
Advertising Costs
The
Company expenses the cost of advertising and promotional materials when incurred. On September 27, 2022, the Company entered into a Platform
Services Contract with SRAX for marketing advisory services and platform fees for a period of one year in the amount of $300,000, to
be paid in Convertible Preferred Series A stock. The fees are non-refundable and therefore the Company recorded the full amount to the
statement of operations. Total advertising costs were $
Leases
In February 2016, the FASB issued ASU 2016-02, “Leases” Topic 842, which amends the guidance in former ASC Topic 840, Leases. The new standard increases transparency and comparability most significantly by requiring the recognition by lessees of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases longer than 12 months. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. For lessees, leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
Revenue Recognition and Related Allowances
On January 1, 2018, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605). Results for reporting periods beginning after January 1, 2018 are presented under Topic 606. The impact of adopting the new revenue standard was not material to our financial statements and there was no adjustment to beginning retained earnings on January 1, 2018.
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
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We determine revenue recognition through the following steps:
| ● | identification of the contract, or contracts, with a customer; | |
| ● | identification of the performance obligations in the contract; | |
| ● | determination of the transaction price; | |
| ● | allocation of the transaction price to the performance obligations in the contract; and | |
| ● | recognition of revenue when, or as, we satisfy a performance obligation. |
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, 2022 and December 31, 2021 is $0.
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.
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 split affected on September 30, 2022 (see Note 15). 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.
Inventories
Inventories
are stated at the lower of cost, computed using the first-in, first-out method and net realizable value. Any adjustments to reduce the
cost of inventories to their net realizable value are recognized in earnings in the current period. As of September 30, 2022 and December
31, 2021, the Company has inventory of $
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.
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The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 for each fair value hierarchy level:
| September 30, 2022 | Derivative Liabilities | Total | ||||||
| Level I | $ | $ | ||||||
| Level II | $ | $ | ||||||
| Level III | $ | $ | ||||||
| December 31, 2021 | Derivative Liabilities | Total | ||||||
| Level I | $ | $ | ||||||
| Level II | $ | $ | ||||||
| Level III | $ | $ | ||||||
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, 2022 and December 31, 2021, the balances reported for cash, accounts receivable, prepaid expenses, accounts payable, and accrued liabilities, approximate the fair value because of their short maturities.
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, 2017, 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, 2021, 2020, 2019 and 2018, which are still open for examination.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires the consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of the new standard.
Although there were new accounting pronouncements issued or proposed by the FASB as of the nine months ended September 30, 2022 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.
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2. GOING CONCERN
The
accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of September 30, 2022,
the Company has a shareholders’ deficit of $
The Company does not have sufficient cash to fund its desired business objectives for its production and marketing for the next 12 months. The Company has arranged financing and intends to utilize the cash received to fund the production and marketing of more beers. This financing may be insufficient to fund expenditures or other cash requirements required to complete the product design for the augmented/virtual reality markets. There can be no assurance the Company will be successful in completing any new product development. 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.
These financial statements do not give effect to adjustments to the amounts and classification to assets and liabilities that would be necessary should the Company be unable to continue as a going concern.
3. DISCONTINUED OPERATIONS – SATEL GROUP, INC. DISPOSITION
On July 1, 2022, the Company and Richard Hylen (the “Buyer”) entered into a Settlement and Sale Agreement for the sale of the Company’s wholly owned subsidiary, Satel Group Inc. in exchange for the debt owed to the buyer.
Satel Group Inc. is the premier provider of DirecTV to high-rise apartments, condominiums, and large commercial office buildings in the San Francisco metropolitan area. Satel’s revenues support BrewBilt Brewing Company during construction of the brewing facility and ramp-up of craft beer revenues
As of June 30, 2022, the debt is inclusive of unpaid wages of $254,272 and interest owed on the unpaid wages of $9,824 for a total amount of $264,096. Further, the buyer has personal loans made to Satel in the amount of $304,314. The company valued the liabilities at $646,011 and exchanged this with Preferred Series A stock at $268.50 per share for a total of 2,406 shares.
In accordance with ASC 205-20, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale. The disposition of Satel met the criteria in paragraph 205-20-45-1E and was reported as a discontinued operation.
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The major classes of assets and liabilities disposed of, reflected in our condensed balance sheet as of December 31 2021, respectively, are presented below:
| Current Assets | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Total current assets of discontinued operations | ||||
| Financial lease assets - related party | ||||
| Security deposit | ||||
| Total non-current assets of discontinued operations | ||||
| Total assets of discontinued operations | $ | |||
| Current Liabilities: | ||||
| Accounts payable | $ | |||
| Accrued wages | ||||
| Accrued expenses | ||||
| Accrued interest | ||||
| Current financing lease liabilities - related party | ||||
| Loans payable | ||||
| Related party liabilities | ||||
| Total current liabilities of discontinued operations | ||||
| Non-current financing lease liabilities - related party | ||||
| Total liabilities of discontinued operations | $ |
During the nine months ended September 30, 2022, discontinued operations consisted of $93,420 in revenue, $302,171 in operating expenses, and $29,949 in interest for a net loss of $233,700.
4. PREPAID EXPENSES
Prepaid fees represent amounts paid in advance for future contractual benefits to be received. 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, 2022 and December 31, 2021, prepaid expenses consisted of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Prepaid accounting fees | $ | $ | ||||||
| Prepaid employee wages | ||||||||
| Prepaid leaseholder improvements | ||||||||
| Prepaid postage | ||||||||
| Prepaid rent | ||||||||
| $ | $ | |||||||
5. RELATED PARTY DEPOSITS
During
the periods ending September 30, 2022 and December 31, 2021, the Company paid a deposit of $
During the three months ended September 30, 2022, the Company received additional equipment of $154,894, made payments of $20,000, and recorded $146,460 to accounts payable for the balance owed on the equipment to BrewBilt Manufacturing. The Company anticipates the remaining equipment will be complete and delivered within three months.
All fabricated equipment is non-refundable. Any equipment purchased by BrewBilt Manufacturing on behalf of the company would potentially be refundable based on the individual manufacturers return policy.
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6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost or fair value as of the date of acquisition. Expenditures for repairs and maintenance are expensed as incurred. Major renewals and betterments that extend the life of the property are capitalized. Depreciation is computed using the straight-line method based upon the estimated useful lives of the underlying assets as follows:
| Kegs | 5 years |
| Computer software and equipment | 2 to 5 years, or the term of a software license, whichever is shorter |
| Office equipment and furniture | 3 to 7 years |
| Machinery and equipment | 3 to 39 years |
| Leasehold improvements | Lesser of the remaining term of the lease or estimated useful life of the asset |
Property, plant, and equipment consisted of the following at September 30, 2022 and December 31, 2021:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Brewing Equipment | $ | $ | ||||||
| Computer Equipment | ||||||||
| Leasehold Improvements | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
During
the nine months ended September 30, 2022, the majority of the brewing equipment was completed and delivered to the company. The equipment
that was delivered and put into use has a cost of $
7. ACCRUED EXPENSES
As of September 30, 2022 and December 31, 2021, accrued expenses were comprised of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accrued expenses | ||||||||
| Credit cards | $ | $ | ||||||
| CRV payable | ||||||||
| Customer keg deposits | ||||||||
| Payroll tax liabilities | ||||||||
| Sales tax payable | ||||||||
| Other short-term liabilities | ||||||||
| Total accrued expenses | $ | $ | ||||||
| Accrued interest | ||||||||
| Interest on notes payable | $ | $ | ||||||
| Interest on accrued wages | ||||||||
| Total accrued interest | $ | $ | ||||||
| Accrued wages | $ | $ | ||||||
During the year ended December 31, 2021, the Company had accrued expenses, wages, and interest of $28,153, $5,077, and $161,210, respectively, for Satel Group, Inc., which has been reported as current liabilities to discontinued operations on the balance sheet (see Note 3).
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8. CONVERTIBLE NOTES PAYABLE
As of September 30, 2022 and December 31, 2021, notes payable were comprised of the following:
| Original | Due | Interest | Conversion | September 30, | December 31, | |||||||||||
| Note Date | Date | Rate | Rate | 2022 | 2021 | |||||||||||
| Emunah Funding #4* | Variable | |||||||||||||||
| FirstFire Global* | 0.18 | |||||||||||||||
| Fourth Man #11 | 0.12 | |||||||||||||||
| Fourth Man #12 | 0.12 | |||||||||||||||
| Fourth Man #13 | 0.45 | |||||||||||||||
| Jefferson St Capital #2* | Variable | |||||||||||||||
| Mast Hill Fund #1 | 0.9 | |||||||||||||||
| Mast Hill Fund #2 | 0.3 | |||||||||||||||
| Mast Hill Fund #3 | 0.18 | |||||||||||||||
| Mast Hill Fund #4 | 0.06 | |||||||||||||||
| Mast Hill Fund #5 | 0.06 | |||||||||||||||
| Mammoth | Variable | |||||||||||||||
| May Davis Partners | Variable | |||||||||||||||
| Labrys Fund #2 | 9 | |||||||||||||||
| Optempus Invest #4 | Variable | |||||||||||||||
| Optempus Invest #5 | Variable | |||||||||||||||
| Optempus Invest #6 | Variable | |||||||||||||||
| Pacific Pier Capital | 0.105 | |||||||||||||||
| Power Up Lending #7 | Variable | |||||||||||||||
| Power Up Lending #8 | Variable | |||||||||||||||
| Power Up Lending #9 | Variable | |||||||||||||||
| Power Up Lending #10 | Variable | |||||||||||||||
| Power Up Lending #11 | Variable | |||||||||||||||
| Less debt discount | ( | ) | ( | ) | ||||||||||||
| Notes payable, net of discount | $ | $ | ||||||||||||||
| * |
1800 Diagonal Lending LLC (formerly Sixth Street Lending LLC)
On January 11, 2022, the Company issued a convertible note to 1800 Diagonal LLC for $53,750, of which $50,000 was received in cash, and $3,750 was recorded as transaction fees. The note bears interest at 10% (increases to 22% per annum upon an event of default), matures on January 11, 2023, and is convertible beginning on the date which is 180 days following the date of the note. The conversion price is 61% multiplied by the average of the two lowest trading prices during the 20 day trading period on the trading day prior to the conversion date. On July 10, 2022, the Company recorded a debt discount from the derivative equal to $53,750 due to this conversion feature, which has been amortized to the statement of operations. During the nine months ended September 30, 2022, the Company issued 724,580 common shares upon the conversion of principal in the amount of $53,750 and interest of $2,688. As of September 30, 2022, the note has been fully satisfied.
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The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On February 10, 2022, the Company issued a convertible note to 1800 Diagonal LLC for $48,750, of which $45,000 was received in cash, and $3,750 was recorded as transaction fees. The note bears interest at 10% (increases to 22% per annum upon an event of default), matures on February 10, 2023, and is convertible beginning on the date which is 180 days following the date of the note. The conversion price is 61% multiplied by the average of the two lowest trading prices during the 20 day trading period on the trading day prior to the conversion date. On August 8, 2022, the Company recorded a debt discount from the derivative equal to $48,750 due to this conversion feature, which has been amortized to the statement of operations. During the nine months ended September 30, 2022, the Company issued 947,917 common shares upon the conversion of principal in the amount of $48,750 and interest of $2,438. As of September 30, 2022, the note has been fully satisfied.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On March 21, 2022, the Company issued a convertible note to 1800 Diagonal LLC for $53,750, of which $50,000 was received in cash, and $3,750 was recorded as transaction fees. The note bears interest at 10% (increases to 22% per annum upon an event of default), matures on March 21, 2023, and is convertible beginning on the date which is 180 days following the date of the note. The conversion price is 61% multiplied by the average of the two lowest trading prices during the 20 day trading period on the trading day prior to the conversion date. On September 7, 2022, the Company agreed to settle the principal amount of $53,750 and accrued interest of $2,503 for a cash payment of $71,500. The settlement resulted in a loss of $15,247, and transaction fees of $3,750 have been amortized to the statement of operations. As of September 30, 2022, the note has been fully satisfied.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Emunah Funding LLC
On October 20, 2017, the Company issued a convertible note to Emunah Funding LLC for $33,840, which includes $26,741 to settle outstanding accounts payable, transaction costs of $4,065, OID interest of $2,840, and cash consideration of $194. On November 6, 2017, the Company issued an Allonge to the convertible debt in the amount of $9,720. The Company received $7,960 in cash and recorded transaction fees of $1,000 and OID interest of $760. On November 30, 2017, the Company issued an Allonge to the convertible debt in the amount of $6,480. The Company received $5,000 in cash and recorded transaction fees of $1,000 and OID interest of $480. On January 11, 2018, the Company issued an Allonge to the convertible debt in the amount of $5,400. The Company received $5,000 in cash and recorded OID interest of $480. The note bears interest of 8% (increases to 24% per annum upon an event of default), matured on July 20, 2018, and is convertible into common stock at 50% of the lowest trading price of the 20 trading day period ending on the latest complete day prior to the date of conversion. The Company recorded a debt discount from the derivative equal to $55,440 due to this conversion feature, which has been amortized to the statement of operations. On October 26, 2018, the principal amount of $40,000 was reassigned to Fourth Man, LLC. Pursuant to the default terms of the note, the Company entered a late filing penalty of $1,000. Prior to the period ended December 31, 2020, the note has converted $13,450 of principal and $4,918 of interest into .16 shares of common stock. As of September 30, 2022, the note has a principal balance of $2,990 and accrued interest of $2,334. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
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FirstFire Global Opportunity Fund LLC
On March 8, 2021, the Company received funding pursuant to a convertible note issued to FirstFire Global Opportunities Fund LLC for $300,000 of which $242,900 was received in cash and $57,100 was recorded as transaction fees. The note bears interest of 12% (increases to 16% per annum upon an event of default), matures on March 8, 2022, and is convertible into common shares at a fixed rate of $0.18. The Company recorded a debt discount from the derivative equal to $300,000 due to this conversion feature, which has been amortized to the statement of operations. Pursuant to the default terms of the note, the Company entered a penalty of $84,000. During the year ended December 31, 2021, the Company issued 135,000 common shares upon the conversion of principal in the amount of $235,000, and conversion fees of $5,000. During the nine months ended September 30, 2022, the Company issued 120,000 common shares upon the conversion of principal in the amount of $92,000, accrued interest of $36,000 and conversion fees of $1,000. As of September 30, 2022, the note has a principal balance of $57,000 and accrued interest of $5,147. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Fourth Man LLC
On March 5, 2021, the Company received funding pursuant to a convertible note issued to Fourth Man LLC for $140,000 of which $113,420 was received in cash and $26,580 was recorded as transaction fees. The note bears interest of 12% (increases to 16% per annum upon an event of default), matures on March 5, 2022 and is convertible into common shares at a fixed rate of $0.45. The Company recorded a debt discount from the derivative equal to $140,000 due to this conversion feature, which has been amortized to the statement of operations. During the year ended December 31, 2021, the Company issued 84,142 common shares upon the conversion of principal in the amount of $114,000, accrued interest of $271 and conversion fees of $7,000. During the nine months ended September 30, 2022, the Company issued 30,642 common shares upon the conversion of principal in the amount of $26,000, accrued interest of $12,329 and conversion fees of $1,750. As of September 30, 2022, the note has been fully satisfied.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On September 27, 2021, the Company received funding pursuant to a convertible note issued to Fourth Man LLC for $111,000 of which $91,000 was received in cash and $20,000 was recorded as transaction fees. The note bears interest of 12% (increases to 16% per annum upon an event of default), matures on September 27, 2022 and is convertible into common shares at a fixed rate of $0.45. The Company recorded a debt discount from the derivative equal to $111,000 due to this conversion feature, which has been amortized to the statement of operations. During the nine months ended September 30, 2022, the Company issued 1,105,168 common shares upon the conversion of principal in the amount of $111,000, accrued interest of $13,320 and conversion fees of $10,500. As of September 30, 2022, the note has been fully satisfied.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On January 10, 2022, the Company received funding pursuant to a convertible note issued to Fourth Man LLC for $140,000 of which $115,440 was received in cash and $24,560 was recorded as transaction fees. The note bears interest of 12% per annum (increases to 16% upon an event of default), which is guaranteed and earned in full as of the issue date. The note matures on January 10, 2023 and is convertible into common shares at a fixed rate of $0.45. The Company recorded a debt discount from the derivative equal to $140,000 due to this conversion feature, and $100,877 has been amortized to the statement of operations. The debt discount and transaction fee interest had a balance at September 30, 2022 of $39,123. During the nine months ended September 30, 2022, the Company issued 393,519 common shares upon the conversion of principal in the amount of $19,500 and conversion fees of $1,750. As of September 30, 2022, the note has a principal balance of $120,500 and accrued interest of $16,800.
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The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Jefferson Street Capital LLC
On March 5, 2019, the Company accepted and agreed to a Debt Purchase Agreement, whereby Jefferson Street Capital LLC acquired $30,000 of debt from an Emunah Funding LLC convertible note in exchange for $29,000, and the Company recorded a gain on settlement of debt of $1,000. The note bears no interest, matures on October 18, 2019, and is convertible into common stock at 57.5% of the lowest trading price of the 20 trading days ending on the latest complete day prior to the date of conversion. The Company recorded a debt discount from the derivative equal to $29,000 due to this conversion feature, which has been amortized to the statement of operations. During the year ended December 31, 2019, the Company issued .24 common shares upon the conversion of principal in the amount of $24,000 and $1,000 in conversion fees. As of September 30, 2022, the note has a principal balance of $5,000. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Labrys Fund, LP
On July 28, 2021, the Company received funding pursuant to a convertible note issued to Labrys Fund, LP for $140,000 of which $112,920 was received in cash and $27,080 was recorded as transaction fees. The note bears interest of 12% (increases to 16% per annum upon an event of default), matures on July 28, 2022, and is convertible into common shares at a fixed rate of $9. The Company recorded a debt discount from the derivative equal to $140,000 due to this conversion feature, which has been amortized to the statement of operations. As of December 31, 2021, the note had a principal balance of $140,000 and accrued interest of $16,800. On January 27, 2022, $157,500 was paid to Labrys Fund, pursuant to a note issued to Mast Hill Fund L.P. which settled the principal amount of $140,000, accrued interest of $16,800, and $750 was recorded to statement of operations as a loss on settlement of debt. As of September 30, 2022, the note has been fully satisfied.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Maguire and Associates, LLC
On April 1, 2022, the Company accepted and agreed to a Note Purchase Agreement, whereby Maguire and Associates LLC acquired $60,000 in principal and $9,940 of accrued interest from three convertible notes issued to Optempus Investments, LLC. On April 1, 2022, the Company agreed to convert the principal balance of $60,000 into Convertible Series A shares. On April 1, 2022, the company issued 223 shares of Convertible Series A shares to Maguire and Associates, LLC, valued at $59,875, and recorded a gain on conversion of debt of $125 to the statement of operations. Maguire and Associates, LLC agreed to forgive the accrued interest amount of $9,940, which was recorded to the statement of operations. As of September 30, 2022, the note has been fully satisfied.
Mammoth Corporation
On March 3, 2022, the Company received funding pursuant to a convertible note issued to Mammoth Corporation for $27,500, of which $25,000 was received in cash and $2,500 was recorded as transaction fees. The note bears interest at 0% (18% per annum upon an event of default), matures on December 3, 2022, and converts into 50% multiplied by the average of the three lowest common stock trading prices during the 30 day trading period on the trading day prior to the conversion date. The Company recorded a debt discount from the derivative equal to $27,500 due to this conversion feature, and $21,100 has been amortized to the statement of operations. The debt discount and transaction fee interest had a balance at September 30, 2022 of $6,400. As of September 30, 2022, the note has a principal balance of $27,500.
18
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Mast Hill Fund, LP
On January 27, 2022, the Company issued a convertible note to Mast Hill Fund, L.P. for $279,000, of which $75,550 was received in cash, $45,900 was recorded as transaction fees, and $157,500 was paid to Labrys Fund, L.P. to settle the principal amount of $140,000 and accrued interest of $16,800. The company recorded a loss on settlement of debt of $750. The note bears interest of 12% per annum, matures on January 27, 2023, and is convertible into common shares at a fixed rate of $0.90. The Company recorded a debt discount from the derivative equal to $258,484 due to this conversion feature, and $174,211 has been amortized to the statement of operations. The debt discount and transaction fee interest had a balance at September 30, 2022 of $84,273. During the nine months ended September 30, 2022, the Company issued 933,000 common shares upon the conversion of principal in the amount of $30,213, accrued interest of $20,517, and conversion fees of $5,250. As of September 30, 2022, the note has a principal balance of $248,787 and accrued interest of $1,879.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On March 3, 2022, the Company received funding pursuant to a convertible note issued to Mast Hill Fund, L.P. for $63,000 of which $51,300 was received in cash and $11,700 was recorded as transaction fees. The note bears interest of 12% per annum, matures on March 3, 2023 and is convertible into common shares at a fixed rate of $0.30. The Company recorded a debt discount from the derivative equal to $63,000 due to this conversion feature, and $36,419 has been amortized to the statement of operations. The debt discount and transaction fee interest had a balance at September 30, 2022 of $26,581. As of September 30, 2022, the note has a principal balance of $63,000 and accrued interest of $4,370.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On April 1, 2022, the Company received funding pursuant to a convertible note issued to Mast Hill Fund, L.P. for $425,000 of which $351,550 was received in cash and $73,450 was recorded as transaction fees. The note bears interest of 12% per annum, matures on April 1, 2023 and is convertible into common shares at a fixed rate of $0.18. The Company recorded a debt discount from the derivative equal to $425,000 due to this conversion feature, and $211,918 has been amortized to the statement of operations. The debt discount and transaction fee interest had a balance at June 30, 2022 of $213,082. As of September 30, 2022, the note has a principal balance of $425,000 and accrued interest of $25,430.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On July 13, 2022, the Company received funding pursuant to a convertible note issued to Mast Hill Fund, L.P. for $125,000 of which $103,250 was received in cash and $21,750 was recorded as transaction fees. The note bears interest of 12% per annum, matures on July 13, 2023 and is convertible into common shares at a fixed rate of $0.06. The Company recorded a debt discount from the derivative equal to $125,000 due to this conversion feature, and $27,055 has been amortized to the statement of operations. The debt discount and transaction fee interest had a balance at September 30, 2022 of $97,945. As of September 30, 2022, the note has a principal balance of $125,000 and accrued interest of $3,247.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
19
On September 6, 2022, the Company received funding pursuant to a convertible note issued to Mast Hill Fund, L.P. for $125,000 of which $103,250 was received in cash and $21,750 was recorded as transaction fees. The note bears interest of 12% per annum, matures on September 6, 2023 and is convertible into common shares at a fixed rate of $0.06. The Company recorded a debt discount from the derivative equal to $125,000 due to this conversion feature, and $8,219 has been amortized to the statement of operations. The debt discount and transaction fee interest had a balance at September 30, 2022 of $116,781. As of September 30, 2022, the note has a principal balance of $125,000 and accrued interest of $986.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
May Davis Partners Acquisition Company, LLC
On March 14, 2022, the Company received funding pursuant to a convertible note issued to May Davis Partners for $27,500, of which $25,000 was received in cash and $2,500 was recorded as transaction fees. The note bears interest at 0% (18% per annum upon an event of default), matures on December 14, 2022, and converts into 50% multiplied by the average of the three lowest common stock trading prices during the 30 day trading period on the trading day prior to the conversion date. The Company recorded a debt discount from the derivative equal to $27,500 due to this conversion feature, and $20,000 has been amortized to the statement of operations. The debt discount and transaction fee interest had a balance at September 30, 2022 of $7,500. As of September 30, 2022, the note has a principal balance of $27,500.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Optempus Investments, LLC
On November 2, 2020, the Company issued a convertible note to Optempus Investments, LLC. for $20,000, of which $10,000 was received in cash and $10,000 was recorded as transaction fees. The note bears interest at 10% (increases to 22% per annum upon an event of default), matures on November 2, 2021, convertible into 60% multiplied by the average of the two lowest trading prices during the 20 day trading period on the trading day prior to the conversion date. The Company recorded a debt discount from the derivative equal to $20,000 due to this conversion feature, which has been amortized to the statement of operations. On April 1, 2022, Optempus Investments, LLC entered into a Note Purchase Agreement with Maguire and Associates LLC, whereby the principal amount of $20,000 and accrued interest of $3,796 was reassigned to Maguire & Associates. As of September 30, 2022, the note has been fully satisfied.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On November 5, 2020, the Company issued a convertible note to Optempus Investments, LLC. for $20,000, of which $10,000 was received in cash and $10,000 was recorded as transaction fees. The note bears interest at 10% (increases to 22% per annum upon an event of default), matures on November 5, 2021, convertible into 60% multiplied by the average of the two lowest trading prices during the 20 day trading period on the trading day prior to the conversion date. The Company recorded a debt discount from the derivative equal to $20,000 due to this conversion feature, which has been amortized to the statement of operations. On April 1, 2022, Optempus Investments, LLC entered into a Note Purchase Agreement with Maguire and Associates LLC, whereby the principal amount of $20,000 and accrued interest of $3,760 was reassigned to Maguire & Associates. As of September 30, 2022, the note has been fully satisfied.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
20
On December 31, 2020, the Company issued a convertible note to Optempus Investments, LLC. for $20,000. The Company received a cash payment of $10,000 on January 8, 2021, and $10,000 was recorded as transaction fees. The note bears interest at 10% (increases to 22% per annum upon an event of default), matures on December 31, 2021, convertible into 60% multiplied by the average of the two lowest trading prices during the 20 day trading period on the trading day prior to the conversion date. The Company recorded a debt discount from the derivative equal to $20,000 due to this conversion feature, which has been amortized to the statement of operations. On April 1, 2022, Optempus Investments, LLC entered into a Note Purchase Agreement with Maguire and Associates LLC, whereby the principal amount of $20,000 and accrued interest of $2,384 was reassigned to Maguire & Associates. As of September 30, 2022, the note has been fully satisfied.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Pacific Pier Capital LLC
On May 20, 2022, the Company received funding pursuant to a convertible note issued to Pacific Pier Capital LLC for $60,000 of which $47,760 was received in cash and $12,240 was recorded as transaction fees. The note bears interest of 12% per annum (increases to 16% upon an event of default), which is guaranteed and earned in full as of the issue date. The note matures on May 20, 2023 and is convertible into common shares at a fixed rate of $0.105. The Company recorded a debt discount from the derivative equal to $60,000 due to this conversion feature, and $21,863 has been amortized to the statement of operations. The debt discount and transaction fee interest had a balance at September 30, 2022 of $38,137. As of September 30, 2022, the note has a principal balance of $60,000 and accrued interest of $7,200.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Power Up Lending Group Ltd.
On July 9, 2021, the Company issued a convertible note to Power Up Lending Group Ltd. for $78,750, of which $75,000 was received in cash, and $3,750 was recorded as transaction fees. The note bears interest at 10% (increases to 22% per annum upon an event of default), matures on July 9, 2022, and is convertible beginning on the date which is 180 days following the date of the note. The conversion price is 61% multiplied by the average of the two lowest trading prices during the 20 day trading period on the trading day prior to the conversion date. The Company recorded a debt discount from the derivative equal to $78,750 due to this conversion feature, which has been amortized to the statement of operations. During the nine months ended September 30, 2022, the Company issued 147,034 common shares upon the conversion of principal in the amount of $78,750 and accrued interest of $3,938. As of September 30, 2022, the note has been fully satisfied.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On August 2, 2021, the Company issued a convertible note to Power Up Lending Group Ltd. for $53,750, of which $50,000 was received in cash, and $3,750 was recorded as transaction fees. The note bears interest at 10% (increases to 22% per annum upon an event of default), matures on August 2, 2022, and is convertible beginning on the date which is 180 days following the date of the note. The conversion price is 61% multiplied by the average of the two lowest trading prices during the 20 day trading period on the trading day prior to the conversion date. The Company recorded a debt discount from the derivative equal to $53,750 due to this conversion feature, which has been amortized to the statement of operations. During the nine months ended September 30, 2022, the Company issued 115,313 common shares upon the conversion of principal in the amount of $53,750 and accrued interest of $1,600. As of September 30, 2022, the note has been fully satisfied.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
21
On August 24, 2021, the Company issued a convertible note to Power Up Lending Group Ltd. for $78,750, of which $75,000 was received in cash, and $3,750 was recorded as transaction fees. The note bears interest at 10% (increases to 22% per annum upon an event of default), matures on August 24, 2022, and is convertible beginning on the date which is 180 days following the date of the note. The conversion price is 61% multiplied by the average of the two lowest trading prices during the 20 day trading period on the trading day prior to the conversion date. The Company recorded a debt discount from the derivative equal to $78,750 due to this conversion feature, which has been amortized to the statement of operations. During the nine months ended September 30, 2022, the Company issued 258,484 common shares upon the conversion of principal in the amount of $78,750 and accrued interest of $3,938. As of September 30, 2022, the note has been fully satisfied.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On September 8, 2021, the Company issued a convertible note to Power Up Lending Group Ltd. for $43,750, of which $40,000 was received in cash, and $3,750 was recorded as transaction fees. The note bears interest at 10% (increases to 22% per annum upon an event of default), matures on September 8, 2022, and is convertible beginning on the date which is 180 days following the date of the note. The conversion price is 61% multiplied by the average of the two lowest trading prices during the 20 day trading period on the trading day prior to the conversion date. The Company recorded a debt discount from the derivative equal to $43,750 due to this conversion feature, which has been amortized to the statement of operations. During the nine months ended September 30, 2022, the Company issued 239,258 common shares upon the conversion of principal in the amount of $43,750 and accrued interest of $2,188. As of September 30, 2022, the note has been fully satisfied.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On October 8, 2021, the Company issued a convertible note to Power Up Lending Group Ltd. for $43,750, of which $40,000 was received in cash, and $3,750 was recorded as transaction fees. The note bears interest at 10% (increases to 22% per annum upon an event of default), matures on October 8, 2022, and is convertible beginning on the date which is 180 days following the date of the note. The conversion price is 61% multiplied by the average of the two lowest trading prices during the 20 day trading period on the trading day prior to the conversion date. The Company recorded a debt discount from the derivative equal to $43,750 due to this conversion feature, which has been amortized to the statement of operations. During the nine months ended September 30, 2022, the Company issued 249,833 common shares upon the conversion of principal in the amount of $43,750 and accrued interest of $2,188. As of September 30, 2022, the note has been fully satisfied.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
22
Convertible Note Conversions
During the nine months ended September 30, 2022, the Company issued the following shares of common stock upon the conversions of portions of the Convertible Notes:
| Principal | Interest | Fee | Total | Conversion | Shares | |||||||||||||||||||||
| Date | Conversion | Conversion | Conversion | Conversion | Price | Issued | Issued to | |||||||||||||||||||
| 1/3/2022 | $ | $ | $ | $ | $ | FirstFire | ||||||||||||||||||||
| 1/4/2022 | Fourth Man #11 | |||||||||||||||||||||||||
| 1/13/2022 | Power Up #7 | |||||||||||||||||||||||||
| 1/13/2022 | FirstFire | |||||||||||||||||||||||||
| 1/14/2022 | Power Up #7 | |||||||||||||||||||||||||
| 1/21/2022 | FirstFire | |||||||||||||||||||||||||
| 2/1/2022 | Power Up #7 | |||||||||||||||||||||||||
| 2/3/2022 | Power Up #7 | |||||||||||||||||||||||||
| 2/14/2022 | Power Up #8 | |||||||||||||||||||||||||
| 2/14/2022 | Power Up #8 | |||||||||||||||||||||||||
| 2/25/2022 | Power Up #9 | |||||||||||||||||||||||||
| 3/1/2022 | Power Up #9 | |||||||||||||||||||||||||
| 3/7/2022 | Power Up #9 | |||||||||||||||||||||||||
| 3/11/2022 | Power Up #9 | |||||||||||||||||||||||||
| 3/16/2022 | Power Up #9 | |||||||||||||||||||||||||
| 3/17/2022 | Power Up #10 | |||||||||||||||||||||||||
| 3/21/2022 | Power Up #10 | |||||||||||||||||||||||||
| 3/22/2022 | Power Up #10 | |||||||||||||||||||||||||
| 3/24/2022 | Power Up #10 | |||||||||||||||||||||||||
| 4/12/2022 | Power Up #11 | |||||||||||||||||||||||||
| 4/12/2022 | Fourth Man #12 | |||||||||||||||||||||||||
| 4/14/2022 | Power Up #11 | |||||||||||||||||||||||||
| 4/19/2022 | Power Up #11 | |||||||||||||||||||||||||
| 4/25/2022 | Fourth Man #12 | |||||||||||||||||||||||||
| 5/24/2022 | Fourth Man #12 | |||||||||||||||||||||||||
| 6/9/2022 | Fourth Man #12 | |||||||||||||||||||||||||
| 7/18/2022 | 1800 Diagonal #1 | |||||||||||||||||||||||||
| 7/21/2022 | 1800 Diagonal #1 | |||||||||||||||||||||||||
| 7/22/2022 | 1800 Diagonal #1 | |||||||||||||||||||||||||
| 7/26/2022 | 1800 Diagonal #1 | |||||||||||||||||||||||||
| 8/10/2022 | Mast Hill #1 | |||||||||||||||||||||||||
| 8/10/2022 | Fourth Man #12 | |||||||||||||||||||||||||
| 8/18/2022 | 1800 Diagonal #2 | |||||||||||||||||||||||||
| 9/1/2022 | 1800 Diagonal #2 | |||||||||||||||||||||||||
| 9/1/2022 | Fourth Man #12 | |||||||||||||||||||||||||
| 9/2/2022 | 1800 Diagonal #2 | |||||||||||||||||||||||||
| 9/6/2022 | 1800 Diagonal #2 | |||||||||||||||||||||||||
| 9/7/2022 | Mast Hill #1 | |||||||||||||||||||||||||
| 9/16/2022 | Mast Hill #1 | |||||||||||||||||||||||||
| 9/27/2022 | Fourth Man #13 | |||||||||||||||||||||||||
| Total conversions | ||||||||||||||||||||||||||
| Loss on conversion | — | — | — | |||||||||||||||||||||||
| $ | 679,963 | $ | 101,141 | $ | 20,250 | $ | 1,128,063 | 5,264,746 | ||||||||||||||||||
9. 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.
23
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 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 leases have remaining lease terms of month-to-month and two 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.
Operating Leases
On February 1, 2017, Simlatus Corp. entered into a standard office lease for approximately 1,700 square feet of office space at 175 Joerschke Drive, Suite A, Grass Valley, CA 95945. The lease has a term of 1 year, from February 1, 2017 through January 31, 2018, with a monthly rent of $1,400. On February 1, 2018, the Company entered into a month-to-month lease with a monthly rent of $1,400. The lease was terminated on December 31, 2021.
On March 1, 2021, BrewBilt Brewing entered into a commercial lease with Lave Systems for approximately 4,000 square feet of space, located in the Wolf Creek Industrial Building at 110 Spring Hill Dr, Grass Valley, CA 95945. The lease has a term of two years, from March 1, 2021 through February 28, 2023, with a monthly rent of $4,000. Lease payments shall increase on March 1, 2022 based upon the CPI published in the Wall Street Journal. On March 1, 2021, the Company recorded of ROU assets of $89,567 and lease liabilities of $89,567 in recognition of this lease.
On July 18, 2021, BrewBilt Brewing terminated its commercial lease with Lave Systems and entered into a new lease agreement with the Jon and Andrea Straatemeir Trust. On August 1, 2021, the company entered into a commercial lease for approximately 6,547 square feet of space, located in the Wolf Creek Industrial Building at 110 Spring Hill Dr, Grass Valley, CA 95945. The lease has a term of five years, from August 1, 2021 through July 31, 2026, with a monthly rent of $4,000.
On August 26, 2022, the company entered into a commercial lease with 4-Corners LLC to establish a Tap Room as part of its brewery revenue. The space is located at 300 Spring St, Nevada City, NV 95959, and the lease has a term of five years, from September 1, 2022 through August 31, 2027. The rent is $3,000 per month from September 1, 2022 through December 31, 2022, $3,500 per month from January 1, 2023 through August 31, 2023, $3,800 per month from September 1, 2023 through August 31, 2024, $4,400 per month from September 1, 2024 through August 31, 2025, $4,700 per month from September 1, 2025 through August 31, 2026, and $4,914 per month from September 1, 2026 through August 31, 2027. On September 1, 2022, the Company recorded of ROU assets of $212,040 and lease liabilities of $212,040 in recognition of this lease.
The Lease Agreement requires a personal guarantee from Jeffrey Lewis and Bennett Buchanan, both Director(s) of the Company, and the Company agreed to issue $300,000 in Convertible Preferred Series A shares each to Mr. Lewis and Mr. Buchanan as collateral for the personal guarantee. On August 25, 2022, the Company issued 1,118 shares of Convertible Preferred Series A stock to Jeffrey Lewis and Bennett Buchanan at $268.50 per share, for a total value of $600,366.
24
ROU assets and lease liabilities related to our operating leases are as follows:
| September 30, 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 leases:
| Years Ending | |||||
| December 31, | Operating Leases | ||||
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Total | |||||
| Less imputed Interest | |||||
| Total liability | $ | ||||
Other information related to leases is as follows:
| Lease Type | Weighted Average Remaining Term | Weighted Average Interest Rate | ||
| Operating Leases | 4.44 years |
Financing Leases
The Company evaluated the leases in accordance with ASC 842 and determined that its leases meet the definition of a finance lease.
On December 22, 2020, the President, Richard Hylen, and the Company entered into two vehicle leases in the amount of $19,314 and $18,689, respectively. The leases have a term of 6 years, from February 5, 2021 January 5, 2027, with monthly payments of $268 and $260, respectively.
On December 22, 2020, the Company entered into a vehicle lease in the amount of $19,314. The lease has a term of 6 years, from February 5, 2021 January 5, 2027, with a monthly payment of $268.
On December 22, 2020, the Company entered into a vehicle lease in the amount of $18,689. The lease has a term of 6 years, from February 5, 2021 January 5, 2027, with a monthly payment of $260.
In connection with the Satel Group, Inc. Settlement and Sale Agreement, dated July 1, 2022, financing lease assets of $26,815, current financing lease liabilities of $4,666, and non-current financing lease liabilities of $22,149 were reported as non-current assets of discontinued operations, current liabilities of discontinued operations, and non-current liabilities of discontinued operations, respectively, on the December 31, 2021 balance sheet (see Note 3).
10. LOANS PAYABLE
On
October 1, 2017, Direct Capital Group, Inc. agreed to cancel two convertible notes in the principal amounts of $25,000 and $36,000, and
$6,304 in accrued interest, in exchange for a Promissory Note in the amount of $61,000. The note bears no interest and is due on or before
October 1, 2020. As of September 30, 2022 and December 31, 2021, the principal balance owed to Direct Capital Group was $
25
On
May 3, 2020, the Company, was granted a loan (the “Loan”) from Bank of America. in the amount of $
The
Loan, which was in the form of a Note dated May 3, 2020 issued by the Borrower, matures on May 3, 2022, and bears interest at a rate
of 1% per annum, payable monthly commencing on November 3, 2020. The Note may be prepaid by the Borrower at any time prior to maturity
with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits,
mortgage payments, rent, utilities, and interest on other debt obligations. The Company intends to use the entire Loan amount for qualifying
expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described
in the CARES Act. As of June 30, 2022 and year ended December 31, 2021, the Company recorded accrued interest of $
Pursuant to the Satel Group, Inc.. Settlement and Sale Agreement, the Loan Payable amount of $72,920 and accrued interest of $1,576 was reclassified to current liabilities of discontinued operations on the balance sheet (see Note 3).
On
June 29, 2022, the Company entered into a Promissory Note with Maguire and Associates LLC in the amount of $
11. DERIVATIVE LIABILITIES
During the nine months ended September 30, 2022, the Company valued the embedded conversion feature of the convertible notes, warrants, certain accounts payable and certain related party liabilities. The fair value was calculated at September 30, 2022 based on the lattice model.
The following table represents the Company’s derivative liability activity for the embedded conversion features for the nine months ended September 30, 2022:
| Notes | Warrants | Stock Payable | Total | |||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Initial recognition of derivative liability | ||||||||||||||||
| Derivative settlements | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss (gain) on derivative liability valuation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
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 September 30, 2022:
| Valuation date | ||
| Expected dividends | ||
| Expected volatility | - | |
| Expected term | - | |
| Risk free interest | - |
Warrants
On January 2, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $29,150 per share and expire on December 31, 2023.
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On January 31, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $35,200 per share and expire on January 31, 2024.
On March 26, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $27,943 per share and expire on March 26, 2024.
On April 9, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $55,000 per share and expire on April 9, 2024.
On April 9, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $55,000 per share and expire on April 9, 2024.
On April 23, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $26,400 per share and expire on April 23, 2024.
On May 30, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $25,000 per share and expire on May 30, 2024.
On May 30, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $25,000 per share and expire on May 30, 2024.
On May 30, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $25,000 per share and expire on May 30, 2024.
On June 21, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $2,500 per share and expire on June 21, 2024.
On July 22, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $38,622 per share and expire on July 22, 2024.
On July 22, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $38,622 per share and expire on July 22, 2024.
On July 22, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $38,622 per share and expire on July 22, 2024.
On August 7, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $33,000 per share and expire on August 7, 2024.
On August 12, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $17,600 per share and expire on August 12, 2024.
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On August 20, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $35,000 per share and expire on August 20, 2024.
On October 9, 2019, the Company executed a Common Stock Purchase Warrant for 1 share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $27,500 per share and expire on October 9, 2024.
On February 8, 2021, the Company executed a Common Stock Purchase Warrant for 51 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $211 per share and expire on February 8, 2026.
On March 8, 2021, the Company executed a Common Stock Purchase Warrant for 11,111 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $45 per share and expire on March 9, 2024.
On January 10, 2022, the Company executed a Common Stock Purchase Warrant for 160,198 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.34 per share and expire on January 10, 2025.
On March 3, 2022, the Company executed a Common Stock Purchase Warrant for 210,000 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.30 per share and expire on March 3, 2027.
On April 1, 2022, the Company executed a Common Stock Purchase Warrant for 2,366,667 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.18 per share and expire on April 1, 2027.
On May 20, 2022, the Company executed a Common Stock Purchase Warrant for 200,000 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.30 per share and expire on May 20, 2027.
On July 13, 2022, the Company executed a Common Stock Purchase Warrant for 1,390,000 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.09 per share and expire on July 13, 2027.
On September 6, 2022, the Company executed a Common Stock Purchase Warrant for 1,390,000 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.09 per share and expire on September 6, 2027.
The Company evaluated all outstanding warrants to determine whether these instruments may be tainted. All warrants outstanding were considered tainted. The Company valued the embedded derivatives within the warrants based on the independent report of the valuation specialist.
The fair value at the valuation dates were based upon the following management assumptions:
| Valuation date | ||
| Expected dividends | ||
| Expected volatility | – | |
| Expected term | – | |
| Risk free interest | – |
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Stock Payable
The payables to be issued in stock are at 100% of the lowest closing market price with a 15 day look back. The fair value at the valuation dates were based upon the following management assumptions:
| Valuation date | ||
| Expected dividends | ||
| Expected volatility | ||
| Expected term | ||
| Risk free interest |
12. RELATED PARTY TRANSACTIONS
On
December 22, 2020, the President, Richard Hylen, and the Company entered into two vehicle leases in the amount of $
The Company is periodically advanced noninterest bearing operating funds from related parties. The advances are due on demand and unsecured. During the year ended December 31, 2021 the Company made payments of $76,746 to amounts due to related parties, and $96,367 was advanced to the Company by related parties. Pursuant to the Settlement and Sale Agreement with Satel Group, Inc., the Company reclassified related party liabilities of $207,086 due to Richard Hylen to current liabilities of discontinued operations on the balance sheet (see Note 3).
During the nine months ended September 30, 2022, the Company made payments of $13,538 to amounts due to related parties, and $93,738 was advanced to the Company by related parties.
During the nine months ended September 30, 2022, the Company issued 2,406 shares of Convertible Series A stock to Richard Hylen, valued at $646,011, in connection with the Settlement and Sale Agreement with Satel Group, Inc..
On March 31, 2022, the Company elected not to renew an employee agreement with Mike Schatz and converted accrued wages and interest of $114,355 to an interest free promissory note. This note will be repaid commencing on April 1, 2022, in monthly installments of no less than $2,000 until the principal amount is satisfied and paid in full. During the nine months ended September 30, 2022, the Company made payments of $6,000. The balance at September 30,2022 is $108,355 and is reported as non-current related party liabilities on the balance sheet.
As
of September 30, 2022 and December 31, 2021, the Company has current related parties liabilities of $
During
the nine months ended September 30, 2022, the Company recorded imputed interest of $
On August 25, 2022, the Company issued 1,118 shares of Convertible Preferred Series A stock to Jeffrey Lewis and Bennett Buchanan at $268.50 per share, for a total value of $600,366 to be guarantors of the tap room lease.
During the periods ending September 30, 2022 and December 31, 2021, the Company paid a deposit of $398,042 and $450,000, respectively, to BrewBilt Manufacturing for fabrication of a brewery system. On June 29, 2022, the majority of the brewing equipment was completed and delivered to the company, which enabled the company to begin brewing beer. The equipment that was delivered and put into use has a cost of $957,344, and the company reclassed the deposit amount of $848,042 to fixed assets and recorded $109,302 to accounts payable for the balance owed on the equipment to BrewBilt Manufacturing.
During the three months ended September 30, 2022, the Company received additional equipment of $154,894, made payments of $20,000, and recorded $146,460 to accounts payable. The Company anticipates the remaining equipment will be complete and delivered within three months.
All fabricated equipment is non-refundable. Any equipment purchased by BrewBilt Manufacturing on behalf of the company would potentially be refundable based on the individual manufacturers return policy.
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13. CONVERTIBLE PREFERRED STOCK
Series A Convertible Preferred Stock
On January 25, 2011, the Company filed an amendment to its Nevada Certificate of Designation to create Series A Convertible Preferred Stock, with a par value of $ and shares authorized.
On January 3, 2017, the Company filed an Amendment to Certificate of Designation with the Nevada Secretary of State defining the rights and preferences of the Series A Convertible Preferred shares. Series A Convertible Preferred stock shall be convertible into common shares at the rate of the closing market price on the day of the conversion notice equal to the dollar amount of the value of the Series A Convertible Preferred shares, and holders shall have no voting rights on corporate matters, unless and until they convert their Series A Convertible Preferred shares 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 April 19, 2021 in connection with the Merger Agreement, the Company approved the authorization of a 1 for 150 reverse stock split of the Company’s outstanding shares of Convertible Series A Preferred stock. At the time the reverse split is effective, the stated value of each share will be $268.50. In addition, the Company reduced the number of authorized shares to 100,000 with a par value of $0.0001. The financial statements have been retroactively adjusted to take this into account for all periods presented.
During the year ended December 31, 2021, 14,192 shares of Convertible Series A Preferred stock were converted to 247,252 common shares in accordance with the conversion terms. The issuances resulted in a loss on conversion of $1,759,694, which was recorded to the statement of operations.
During the year ended December 31, 2021, the Company issued 93 shares each of Convertible Series A Preferred stock to Richard Hylen, Jef Lewis, and Bennett Buchanan and 279 shares of Convertible Series A Preferred stock to Sam Berry, pursuant to employee, consulting, and director agreements (Note 17). These shares were issued at a value at $149,992 and resulted in a gain of conversion of $6, which was recorded to the statement of operations.
On March 4, 2022, the Company issued 93 shares of Series A Convertible Preferred stock for $25,000 in advertising services provided by Jef Freeman. The shares were valued at $24,971, and $29 was recorded to additional paid in capital.
On November 1, 2021, the Company entered into a Licensing Agreement with Maguire & Associates and agreed to issue 18,622 shares of Convertible Preferred Series A stock valued at $5,000,000. The shares were issued on March 8, 2022 and $5,000,007 was reclassified to Series A Convertible Preferred Stock, and $7 was recorded to additional paid in capital.
On April 1, 2022, the Company issued 223 shares of Series A Convertible Preferred stock to settle $60,000 in convertible debt. The shares were valued at $59,875, and a gain on conversion of debt of $124 was recorded to the statement of operations and $78,789 in derivative liabilities were reclassed to additional paid in capital.
On June 29, 2022, the Company issued 400 shares of Convertible Series A Preferred stock, valued at $107,400, in connection with a promissory note.
On July 1, 2022, the Company issued 2,406 shares of Convertible Series A Preferred stock, valued at $646,011, to Richard Hylen in connection with the sale of the company’s wholly owned subsidiary, Satel Inc.
On August 25, 2022, the Company issued 1,118 shares of Convertible Preferred Series A stock to Jeffrey Lewis and Bennett Buchanan at $268.50 per share, for a total value of $600,366 as guarantors of the tap room lease.
On September 2, 2022, the holder of 455 shares of Convertible Preferred Series A stock agreed to cancel the shares in connection with a settlement agreement. The shares were cancelled in exchange for a cash payment of $30,000. Upon execution of the agreement, the Company made a payment of $10,000 and the balance of $20,000 will be paid in $4,000 monthly installments with no interest. The cancelled shares were valued at $122,168, and the company recorded a gain on settlement of debt of $92,168 to the statement of operations.
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During the nine months ended September 30, 2022, 1,083 shares of Convertible Series A Preferred stock were converted to 1,743,459 common shares in accordance with the conversion terms. The issuances resulted in a loss on conversion of $293,078, 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 Convertible Series A Preferred Stock has a fixed value of $268.50 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 $14,280,978 which represents 53,188 Series A Convertible Preferred Stock at $268.50 per share, issued and outstanding as of September 30, 2022, outside of permanent equity and liabilities.
Series C Convertible Preferred Stock
On June 13, 2019, the Company’s Board of Directors authorized the creation of 45,750 shares of Series C Convertible Preferred Stock with a par value of $0.0001, and on June 13, 2019, a Certificate of Designation was filed with the Nevada Secretary of State. The Convertible Preferred Series C shall have no voting rights as to corporate matters unless, and until, they are converted into common shares, at which time, they will have the same voting rights as all common stock shareholders. Convertible Preferred Series C shares cannot be sold, assigned, hypothecated, or otherwise disposed of, without first obtaining the consent of the majority Convertible Preferred Series C shareholders. Convertible Preferred Series C shares shall have a value of $10 per share and shall convert into common shares at the rate of the closing market price on the day of conversion notice equal to the dollar amount of the value of the Convertible Preferred Series C share. At no time may the shareholder convert their shares into more than 4.99% of the issued and outstanding.
During the year ended December 31, 2021, 35,583 shares of Convertible Series C Preferred stock valued at $355,830 were converted to 2,222 common shares in accordance with the conversion terms. The issuances resulted in a gain on conversion of $155,830, which was recorded to the statement of operations.
The Convertible Series C 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.
On June 11, 2021, in connection with the Merger Agreement, the Company eliminated Series C Convertible Preferred stock class.
Preferred Stock Payable
On December 28, 2020, the Company received resignation letters from Baron Tennelle, Dusty Vereker, and Robert Stillwaugh. The Company agreed to issue Preferred Series A shares to settle unpaid wages and interest owed to those individuals.
The Company agreed to issue 353 Preferred Series A shares to Baron Tennelle in exchange for accrued wages of $90,000 and interest of $4,745. The Company agreed to issue 337 Preferred Series A shares to Dusty Vereker in exchange for accrued wages of $86,250 and interest of $4,350. The Company agreed to issue 2,119 Preferred Series A shares to Robert Stillwaugh in exchange for accrued wages of $427,708 and interest of $141,190.
The shares were issued on January 7, 2021 and the Company reclassed $754,249 from Preferred Stock Payable to Convertible Series A Preferred Stock.
On November 1, 2021, the Company entered into a Licensing Agreement with Maguire & Associates and agreed to issue 18,622 shares of Convertible Preferred Series A stock valued at $5,000,000. The shares were issued on March 8, 2022 at a value of $5,000,007, and $5,000,000 was reclassified to Series A Convertible Preferred Stock, and $7 was recorded to additional paid in capital.
On January 1, 2022, the company agreed to issue 186 Convertible Series A shares each to Jef Lewis, Richard Hylen, Sam Berry, and Bennett Buchanan for total fees of $200,000, pursuant to Directors Agreements. The shares have a value of $199,764, and $236 was recorded to additional paid in capital.
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On March 31, 2022, the company agreed to issue 1,490 shares of Convertible Series A Preferred stock for compensation in the amount of $400,000, pursuant to an employee agreement with Mike Schatz. The shares have a value of $400,065, and $65 was credited to additional paid in capital.
On September 27, 2022, the Company entered into a Platform Services Contract with SRAX for marketing advisory services and platform fees for a period of one year in the amount of $300,000, to be paid in Convertible Preferred Series A stock.
14. PREFERRED STOCK
On January 25, 2011, the Company filed an amendment to its Nevada Certificate of Designation to create Series B Preferred Stock, with a par value of $ and shares authorized.
On
July 1, 2015, the Company’s Board of Directors authorized the creation of shares of Series B Voting Preferred Stock and on July
27, 2015 a Certificate of Designation was filed with the Nevada Secretary of State. The holder of the shares of the Series B Voting Preferred
Stock has the right to vote those shares of the Series B Voting Preferred Stock regarding any matter or action that is required to be
submitted to the shareholders of the Company for approval.
On November 9, 2018, newly appointed President, Richard Hylen was issued Preferred Series B Control Shares, pursuant to his employee agreement dated November 1, 2018.
On
January 20, 2021, newly appointed President, Jef Lewis and Satel’s President Richard Hylen were each issued
On June 11, 2021, the Company filed a Certificate of Amendment with the Florida Secretary of State to decrease the number of authorized Preferred Series B from to with a par value of $.
On July 1, 2022, the Company cancelled Preferred Series B Control shares held by Richard Hylen in connection with the sale of the company’s wholly owned subsidiary, Satel Inc.
As of September 30, 2022, Series B Preferred shares were authorized, of which shares were issued and outstanding.
15. COMMON STOCK
On
March 8, 2021, the Company issued common shares in stock based compensation, valued at $
On August 3, 2021, the Company’ Board of Directors and the Majority Stockholders owning a majority of the Company’s voting securities, approved a resolution authorizing the Company to amend the Articles of Incorporation to increase the number of authorized Common Shares from to shares at par value $ per share.
On August 11, 2021, the Company’ Board of Directors and the Majority Stockholders owning a majority of the Company’s voting securities, approved a resolution authorizing the Company to amend the Articles of Incorporation to increase the number of authorized Common Shares from to shares at par value $ per share.
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On September 2, 2021, the Company’ Board of Directors and the Majority Stockholders owning a majority of the Company’s voting securities, approved a resolution authorizing the Company to amend the Articles of Incorporation to increase the number of authorized Common Shares from to shares at par value $ per share.
During the year ended December 31, 2021, 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 year ended December 31, 2021,
During
the year ended December 31, 2021, the holders of convertible notes converted a total of $
On January 24, 2022, a warrant holder exercised the warrants and the Company issued shares of common stock through a cashless exercise of the warrants in accordance with the conversion terms.
On January 31, 2022, a warrant holder exercised the warrants and the Company issued shares of common stock through a cashless exercise of the warrants in accordance with the conversion terms.
On April 5, 2022, the Company filed a Certificate of Amendment with the Florida Secretary of State to increase the number of authorized common shares from to with a par value of $.
On
May 20, 2022, the Company issued shares of common stock, valued at $
On July 27, 2022, a warrant holder exercised the warrants and the Company issued shares of common stock through a cashless exercise of the warrants in accordance with the conversion terms.
On
August 3, 2022, shares of common stock were purchased for $
On September 29, 2022, the Company filed a Certificate of Amendment with the Florida Secretary of State to decrease the number of authorized common shares from to with a par value of $.
During
the nine months ended September 30, 2022,
During
the nine months ended September 30, 2022, the holders of convertible notes converted a total of $
As of September 30, 2022, common shares, par value $, were authorized, of which shares were issued and outstanding.
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16. INCOME TAXES
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, 2022:
| September 30, 2022 | ||||
| Net tax loss carry-forwards | $ | |||
| 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, 2017, 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, 2018, 2019, 2020 and 2021 which are still open for examination.
17. COMMITMENTS AND CONTINGENCIES
Distribution and Licensing Agreements
On November 1, 2021, the Company entered into a Distribution Agreement with South Pacific Traders Oy for the exclusive right to distribute the company’s products in the European Community and the United Kingdom. The term of the agreement is for a period of five years.
On November 1, 2021, the Company entered into an IP Purchase and License Agreement with Maguire & Associates LLC to provide for the marketing of products and services into the European Community based on the inventions of the IP/License Rights to develop and commercialize for the sole benefit BrewBilt Brewing. The agreement is for a period of five years. Pursuant to the agreement, the Company has issued 18,622 Series A shares valued at $5,000,000.
Director Agreements
On January 1, 2022, the Company entered into a new Directors Agreement with Jef Lewis for a term of one year. In exchange for serving in this capacity, the Company will issue 186 shares of Convertible Preferred Series A stock at a price of $268.50 per share. The shares are restricted and cannot be sold or otherwise transferred by the undersigned except as provided by law, and in no event, prior to the maturity date of six (6) months.
On January 1, 2022, the Company entered into a new Directors Agreement with Sam Berry for a term of one year. In exchange for serving in this capacity, the Company will issue 186 shares of Convertible Preferred Series A stock at a price of $268.50 per share. The shares are restricted and cannot be sold or otherwise transferred by the undersigned except as provided by law, and in no event, prior to the maturity date of six (6) months.
On January 1, 2022, the Company entered into a new Directors Agreement with Bennett Buchanan for a term of one year. In exchange for serving in this capacity, the Company will issue 186 shares of Convertible Preferred Series A stock at a price of $268.50 per share. The shares are restricted and cannot be sold or otherwise transferred by the undersigned except as provided by law, and in no event, prior to the maturity date of six (6) months.
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On January 1, 2022, the Company entered into a new Directors Agreement with Richard Hylen for a term of one year. In exchange for serving in this capacity, the Company will issue 186 shares of Convertible Preferred Series A stock at a price of $268.50 per share. The shares are restricted and cannot be sold or otherwise transferred by the undersigned except as provided by law, and in no event, prior to the maturity date of six (6) months.
Lease
On August 1, 2021, the company entered into a commercial lease for approximately 6,547 square feet of space, located in the Wolf Creek Industrial Building at 110 Spring Hill Dr, Grass Valley, CA 95945. The lease has a term of five years, from August 1, 2021 through July 31, 2026, with a monthly rent of $4,000.
On August 26, 2022, the company entered into a commercial lease with 4-Corners LLC to establish a Tap Room as part of its brewery revenue. The space is located at 300 Spring St, Nevada City, NV 95959, and the lease has a term of five years, from September 1, 2022 through August 31, 2027. The rent is $3,000 per month from September 1, 2022 through December 31, 2022, $3,500 per month from January 1, 2023 through August 31, 2023, $3,800 per month from September 1, 2023 through August 31, 2024, $4,400 per month from September 1, 2024 through August 31, 2025, $4,700 per month from September 1, 2025 through August 31, 2026, and $4,914 per month from September 1, 2026 through August 31, 2027.
Legal Matters
As of the date of this filing, the Company knows of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer, or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
18. SUBSEQUENT EVENTS
Notes Payable & Warrants
On October 4, 2022, the Company entered in a Promissory Note with a holder of Convertible Preferred Series shares. The shareholder agreed to cancel 3,259 shares of Convertible Preferred Series A stock in exchange for a Promissory Note in the amount of $875,042. The Company agreed to issue 87,504,150 shares of common stock as collateral in the event the note is not paid by the due date of December 31, 2025.
On October 7, 2022, the Company entered in a Promissory Note with Coventry Enterprises LLC, in the amount of $125,000. The note is unsecured, bears interest at 10% per annum, and matures on October 27, 2023. The Company agreed to issue 1,000,000 shares of common stock in connection with the note.
On October 10, 2022, the Company entered in a Convertible Promissory Note with 1800 Diagonal Lending LLC, in the amount of $44,250. The note is unsecured, bears interest at 10% per annum, and matures on October 10, 2023.
On October 14, 2022, the Company executed a Common Stock Purchase Warrant for 918,750 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.0144 per share and expire on October 14, 2027.
On November 3, 2022, the Company entered in a Convertible Promissory Note with Pacific Pier Capital, LLC, in the amount of $20,000. The note is unsecured, bears interest at 12% per annum, and matures on November 3, 2023.
Subsequent Stock Filings and Issuances
On October 4, 2022, a warrant holder exercised the warrants and the Company issued shares of common stock through a cashless exercise of the warrants in accordance with the conversion terms.
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On October 4, 2022, the Company cancelled 3,259 shares of Convertible Preferred stock in exchange for 87,504,150 common shares that were issued as collateral on a promissory note.
On October 6, 2022, shares of Convertible Series A stock was converted into shares of common stock.
On October 7, 2022, the Company issued 1,000,000 shares of common stock in connection with a Promissory Note.
On October 14, 2022, the Company issued common shares due to rounding in connection with the reverse stock split.
On
October 17, 2022, the holder of a convertible note converted a total of $
On
October 17, 2022, the holder of a convertible note converted a total of $
On October 20, 2022, a warrant holder exercised the warrants and the Company issued shares of common stock through a cashless exercise of the warrants in accordance with the conversion terms.
On
October 21, 2022, 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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2022 Compared with the Three Months Ended September 30, 2021
Revenues:
The Company’s revenues were $35,426 for the three months ended September 30, 2022 compared to $16,640 for the three months ended September 30, 2021. The increase was primarily due to the production of beer that began in June of 2022. The Company’s revenues in 2021 were from audio and video equipment sales as part of the operations of Simlatus Corp.
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Cost of Sales:
The Company’s cost of sales was $27,364 for the three months ended September 30, 2022, compared to $4,859 for the three months ended September 30, 2021. The cost to produce beer is much higher than the cost of materials for audio and video equipment that was sold in 2021.
Operating Expenses:
Operating expenses consisted primarily of consulting fees, professional fees, salaries, and wages, share based compensation, 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, 2022 and September 30, 2021, were $1,250,311 and $240,961, respectively. The increase was primarily attributable to an increase in wages and expenses related to the brewery.
Other Income (Expense):
Other income (expense) for the three months ended September 30, 2022 and September 30, 2021 was $31,285 and $612,358, respectively. Other income (expense) consisted of derivative valuation gains and losses, gains or losses on settlement of debt and conversion of debt, 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 to interest and penalties on outstanding notes payable, the initial interest expense associated with the valuation of derivative instruments at issuance, and the accretion of the convertible debentures over their respective terms. Although there was an increase in interest expense during the three months ended September 30, 2022, the decrease in other income was primary due to a gain on derivative expenses during the three months ended September 30, 2021.
Net Profit (Loss):
Net profit (loss) for the three months ended September 30, 2022 was $(1,211,864) compared to $383,178 for the three months ended September 30, 2021. The increase in net loss can be explained by the changes in the fair value of derivative liabilities and the increase in operating expenses.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2022 Compared with the Nine Months Ended September 30, 2021
Revenues:
The Company’s revenues were $62,265 for the nine months ended September 30, 2022 compared to $29,362 for the nine months ended September 30, 2021. The increase in sales in Q3 2022 is due to the revenues from beer sales.
Cost of Sales:
The Company’s cost of sales was $37,159 for the nine months ended September 30, 2022, compared to $8,834 for the nine months ended September 30, 2021. This is due to the additional of beer sales which have higher costs associated with the production of the product..
Operating Expenses:
Operating expenses consisted primarily of consulting fees, professional fees, salaries and wages, share based compensation, 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, 2022 and September 30, 2021, were $2,649,601 and $1,801,870, respectively. The variance was primarily attributable to an increase in share based compensation and an increase in salaries and wages that was reported during the nine months ended September 30, 2022.
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Other Income (Expense):
Other income (expense) for the nine months ended September 30, 2022 and September 30, 2021 was $(1,686,885) and $1,150,697, respectively. Other income (expense) consisted of derivative valuation gains and losses, gains or losses on settlement of debt and conversion of debt, 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 to interest and penalties on outstanding notes payable, 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 and an increase in interest expenses.
Net Loss:
Net loss from continuing operations for the nine months ended September 30, 2022 was $4,311,380 compared to $630,645 for the nine months ended September 30, 2021. The increase in net loss can be explained by the increase in operating and other expenses during the nine months ended September 30, 2022.
Impact of Inflation
We believe that the rate of inflation has had a negligible effect on our operations.
Liquidity and Capital Resources
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Current Assets | $ | 67,212 | $ | 527,665 | ||||
| Current Liabilities | 4,651,674 | 4,364,451 | ||||||
| Working Capital (Deficit) | $ | (4,584,462 | ) | $ | (3,836,786 | ) | ||
The overall working capital (deficit) increased from $(3,836,786) at December 31, 2021 to $(4,584,462) at September 30, 2022 due to the reclassing of $450,000 in related party deposits to fixed assets and an increase of derivative liabilities and accounts payable.
| September 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Cash Flows (used in) provided by Operating Activities | $ | (295,094 | ) | $ | (443,914 | ) | ||
| Cash Flows (used in) provided for Investing Activities | (725,075 | ) | (533,426 | ) | ||||
| Cash Flows (used in) provided for Financing Activities | 996,600 | 973,160 | ||||||
| Net Increase (decrease) in Cash During Period | $ | (23,569 | ) | $ | (4,180 | ) | ||
During the nine months ended September 30, 2022 cash (used in) provided by operating activities was $(295,094) compared to $(443,914) for the nine months ended September 30, 2021. The decrease in the cash used in operating activities is primarily attributed to the change in fair value of derivative liabilities, stock based compensation and loss on conversions.
During the nine months ended September 30, 2022 cash (used in) provided for investing activities was $(725,075) compared to $(533,426) for the nine months ended September 30, 2021. In the nine months ended September 30, 2022, the company recognized brewing equipment of $1,115,575, reclassified $450,000 of related party deposits, recorded $255,762 of related party accounts payable and incurred $315,261 in leasehold improvements.
During the nine months ended September 30, 2022, cash (used in) provided for financing activities was $996,600 compared to $973,160, for the nine months ended September 30, 2021. The increase in cash used by financing activity primarily resulted from an increase in proceeds from notes payable and promissory notes during the nine months ended September 30, 2022.
As of September 30, 2022, the Company had a cash balance and current asset total of $22,858 and $67,212 respectively, compared with $46,427 and $527,665 of cash and current assets, respectively, as of December 31, 2021. The decrease in assets was due to the reclassification of related party deposits for brewery equipment that was delivered and put into use in Q2 2022.
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As of September 30, 2022, the Company had total current liabilities of $4,651,674 compared with $4,364,451 as of December 31, 2021. The increase in current liabilities was primarily attributed to an increase in derivative liabilities, accrued liabilities and accounts payable.
Going Concern
The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. Since its inception, the Company has been funded by related parties through capital investment and borrowing funds.
As of September 30, 2022 we have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our December 31, 2021 audited financial statements that they have substantial doubt that we will be able to continue as a going concern.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.
Off-Balance Sheet Arrangements
We have no significant 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.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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 periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires the consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of the new standard.
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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a non-accelerated filer and a smaller reporting company, as defined in Rule 12b-2 of the of the Securities Exchange Act of 1934, and as such, are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act 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 Company’s officers, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our Company’s officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses in our internal control over financial reporting identified in our Annual Report on Form 10-K for the year ended December 31, 2021, that was filed with the SEC on April 4, 2022, the Company’s officers concluded that our disclosure controls and procedures are ineffective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act, during the quarter ended September 30, 2022 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
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer, or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
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
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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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 |
Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Dated: November 22, 2022
| /s/ Jef Lewis | ||
| By: Jef Lewis | ||
| Its: President, Chief Executive Officer | ||
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