U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Mark One
x QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2021
o TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to _______
Commission file number 000-55787
BrewBilt Manufacturing Inc. |
(Exact name of registrant as specified in its charter) |
Florida | 47-0990750 | |||
(State
or other jurisdiction of incorporation) |
(I.R.S.
Employer Identification No.) | |||
110
Spring Hill Road #10
Grass Valley, CA 95945
(Address of principal executive offices)
(530)
802-5023
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes | x | No | o |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files
Yes | x | No | o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x |
Emerging growth company x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes | o | No | x |
As of May 5, 2021, there were 4,635,222,744 shares of the registrants $0.001 par value common stock issued and outstanding.
CONTENTS
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-Q that are not historical or current facts are forward-looking statements.. These statements often can be identified by the use of terms such as may, will, expect, believe, anticipate, estimate, approximate or continue, or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent managements best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
PART I - FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. For further information, refer to the financial statements and footnotes thereto included in our companys Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the Securities and Exchange Commission on March 31, 2021.
REPORTED IN UNITED STATES DOLLARS
3
BREWBILT MANUFACTURING INC. |
CONDENSED CONSOLIDATED BALANCE SHEETS |
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 379,857 | $ | 72,764 | ||||
Accounts receivable | 910,338 | 97,701 | ||||||
Earnings in excess of billings | 238,247 | 489 | ||||||
Inventory | 68,478 | 44,223 | ||||||
Prepaid expenses | 9,811 | 8,552 | ||||||
Total current assets | 1,606,731 | 223,729 | ||||||
Property, plant, and equipment, net | 112,210 | 109,339 | ||||||
Right-of-use asset | 236,494 | 246,968 | ||||||
Security deposit | 16,980 | 16,980 | ||||||
TOTAL ASSETS | $ | 1,972,415 | $ | 597,016 | ||||
LIABILITIES AND STOCKHOLDERS DEFICIT | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 780,169 | $ | 843,882 | ||||
Accrued interest | 120,235 | 106,639 | ||||||
Accrued liabilities | 227,932 | 286,997 | ||||||
Billings in excess of revenue | 1,530,671 | 71,280 | ||||||
Current operating lease liabilities | 43,707 | 42,977 | ||||||
Convertible notes payable, net of discount | 152,333 | 149,988 | ||||||
Derivative liabilities | 1,935,295 | 2,373,176 | ||||||
Liability for unissued shares | 150,825 | 150,825 | ||||||
Promissory notes payable, net of discount | 216,716 | 101,056 | ||||||
Related party liabilities | 200,836 | 154,252 | ||||||
Total Current Liabilities | 5,358,719 | 4,281,072 | ||||||
Long term debt | 283,119 | 281,357 | ||||||
Non-current operating lease liabilities | 192,787 | 203,991 | ||||||
Total Liabilities | 5,834,625 | 4,766,420 | ||||||
Commitments and contingencies | — | — | ||||||
Stockholders Deficit: | ||||||||
Preferred stock, Series A: $0.001 par value; 30,000,000 shares authorized | 958 | 1,120 | ||||||
957,500 shares issued and outstanding at March 31, 2021 | ||||||||
1,120,000 shares issued and outstanding at December 31, 2020 | ||||||||
Preferred stock, Series B: $0.001 par value; 1,000 shares authorized | 1 | 1 | ||||||
1,000 shares issued and outstanding at March 31, 2021 | ||||||||
1,000 shares issued and outstanding at December 31, 2020 | ||||||||
Common stock, $0.001 par value; 20,000,000,000 authorized | 4,351,431 | 3,534,022 | ||||||
4,351,431,054 shares issued and outstanding at March 31, 2021 | ||||||||
3,534,022,455 shares issued and outstanding at December 31, 2020 | ||||||||
Additional paid in capital | 1,379,451 | (748,254 | ) | |||||
Retained earnings | (9,594,051 | ) | (6,956,293 | ) | ||||
Total stockholders deficit | (3,862,210 | ) | (4,169,404 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT | $ | 1,972,415 | $ | 597,016 |
The accompanying notes are an integral part of these financial statements
4
BREWBILT MANUFACTURING INC. |
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS |
(Unaudited) |
Three months ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
Sales | $ | 13,251 | $ | 38,934 | ||||
Cost of sales | 7,614 | 21,623 | ||||||
Gross profit | 5,637 | 17,311 | ||||||
Operating expenses: | ||||||||
Consulting fees | 121,608 | 24,750 | ||||||
G&A expenses | 150,525 | 82,712 | ||||||
Professional fees | 80,702 | 47,370 | ||||||
Salaries and wages | 51,166 | 147,660 | ||||||
Total operating expenses | 404,001 | 302,492 | ||||||
Loss from operations | (398,364 | ) | (285,181 | ) | ||||
Other income (expense): | ||||||||
Debt forgiveness | 13,924 | — | ||||||
Gain (loss) on derivative liability valuation | (1,033,712 | ) | (1,710,732 | ) | ||||
Loss on conversion | (786,315 | ) | — | |||||
Interest expense | (433,291 | ) | (140,476 | ) | ||||
Total other expenses | (2,239,394 | ) | (1,851,208 | ) | ||||
Net loss before income taxes | (2,637,758 | ) | (2,136,389 | ) | ||||
Income tax expense | — | — | ||||||
Net loss | $ | (2,637,758 | ) | $ | (2,136,389 | ) | ||
Per share information | ||||||||
Weighted number of common shares outstanding, basic, and diluted | 3,996,863,319 | 34,595,672 | ||||||
Net income (loss) per common share | $ | (0.0007 | ) | $ | (0.0618 | ) |
The accompanying notes are an integral part of these financial statements
5
BREWBILT MANUFACTURING INC. |
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT |
For the three months ended March 31, 2021 and 2020 |
(Unaudited) |
Preferred Stock | Preferred Stock | Additional | Total | |||||||||||||||||||||||||||||||||
Series A | Series B | Common Stock | Paid-In | Retained | Stockholders | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Equity (Deficit) | ||||||||||||||||||||||||||||
Balance at December 31, 2020 | 1,120,000 | $ | 1,120 | 1,000 | $ | 1 | 3,534,022,455 | $ | 3,534,022 | $ | (748,254 | ) | $ | (6,956,293 | ) | $ | (4,169,404 | ) | ||||||||||||||||||
Conversion of promissory notes to stock | — | — | — | — | 175,060,588 | 175,061 | 1,448,275 | — | 1,623,336 | |||||||||||||||||||||||||||
Derivative settlements | — | — | — | — | — | — | 435,301 | — | 435,301 | |||||||||||||||||||||||||||
Preferred stock converted to common stock | (172,500 | ) | (172 | ) | — | — | 570,299,494 | 570,299 | 216,188 | — | 786,315 | |||||||||||||||||||||||||
Preferred stock issued for services | 10,000 | 10 | — | — | — | — | 99,990 | — | 100,000 | |||||||||||||||||||||||||||
Warrant exercise | — | — | — | — | 72,048,517 | 72,049 | (72,049 | ) | — | — | ||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (2,637,758 | ) | (2,637,758 | ) | |||||||||||||||||||||||||
Balance at March 31, 2021 | 957,500 | $ | 958 | 1,000 | $ | 1 | 4,351,431,054 | $ | 4,351,431 | $ | 1,379,451 | $ | (9,594,051 | ) | $ | (3,862,210 | ) | |||||||||||||||||||
Preferred Stock | Preferred Stock | Additional | Total | |||||||||||||||||||||||||||||||||
Series A | Series B | Common Stock | Paid-In | Retained | Stockholders | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Equity (Deficit) | ||||||||||||||||||||||||||||
Balance at December 31, 2019 | 400,000 | $ | 400 | 1,000 | $ | — | 10,343,330 | $ | 10,343 | $ | (15,240,774 | ) | $ | 9,368,557 | $ | (5,861,474 | ) | |||||||||||||||||||
Conversion of promissory notes to stock | — | — | — | — | 32,260,676 | 32,261 | 366,617 | — | 398,878 | |||||||||||||||||||||||||||
Derivative settlements | — | — | — | — | — | — | (50,586 | ) | — | (50,586 | ) | |||||||||||||||||||||||||
Cancellation of stock issued for services | — | — | — | — | (8,008,334 | ) | (8,008 | ) | (42,257 | ) | — | (50,265 | ) | |||||||||||||||||||||||
Preferred stock issued per agreement | 500,000 | 500 | — | — | — | — | — | — | 500 | |||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (2,136,389 | ) | (2,136,389 | ) | |||||||||||||||||||||||||
Balance at March 31, 2020 | 900,000 | $ | 900 | 1,000 | $ | — | 34,595,672 | $ | 34,596 | $ | (14,967,000 | ) | $ | 7,232,168 | $ | (7,699,336 | ) |
The accompanying notes are an integral part of these financial statements
6
BREWBILT MANUFACTURING INC. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited) |
Three months ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,637,758 | ) | $ | (2,136,389 | ) | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Amortization of convertible debt discount | 392,362 | 58,224 | ||||||
Change in derivative liability | 1,033,712 | 1,710,732 | ||||||
Common stock issued for services | — | (25,000 | ) | |||||
Debt forgiveness | (13,924 | ) | — | |||||
Depreciation and amortization of fixed assets | 8,950 | — | ||||||
Loss on conversion | 786,315 | — | ||||||
Preferred stock issued for services | 100,000 | — | ||||||
Liability for unissued shares due to agreements | — | 25,000 | ||||||
Decrease (increase) in operating assets | ||||||||
Accounts receivable | (812,637 | ) | (149,674 | ) | ||||
Deposits | — | (12,000 | ) | |||||
Earnings in excess of billings | (237,758 | ) | (90,250 | ) | ||||
Inventory | (24,255 | ) | — | |||||
Prepaid expenses | (1,259 | ) | 9,098 | |||||
Other assets | — | (65 | ) | |||||
Increase (decrease) in operating liabilities | ||||||||
Accounts payable | (63,713 | ) | (38,775 | ) | ||||
Accrued interest | 45,085 | 78,849 | ||||||
Accrued liabilities | 90,909 | 51,721 | ||||||
Billings in excess of revenues | 1,459,391 | 316,347 | ||||||
Long term debt | 1,762 | (33,710 | ) | |||||
Net cash (used in) provided by operating activities | 127,182 | (235,892 | ) | |||||
Cash flows from investing activities | ||||||||
Property, plant and equipment, additions | (11,821 | ) | — | |||||
Property, plant and equipment, reductions | — | 12,403 | ||||||
Net cash (used in) provided by investing activities | (11,821 | ) | 12,403 | |||||
Cash flows from financing activities: | ||||||||
Proceeds from convertible debt | 185,000 | 185,000 | ||||||
Proceeds from promissory notes | 109,000 | — | ||||||
Related party liabilities | (102,268 | ) | 37,665 | |||||
Net cash (used in) provided for financing activities | 191,732 | 222,665 | ||||||
Net increase (decrease) in cash | 307,093 | (824 | ) | |||||
Cash, beginning of period | 72,764 | 1,444 | ||||||
Cash, end of period | $ | 379,857 | $ | 620 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for income taxes | $ | — | $ | — | ||||
Cash paid for interest | $ | 11,072 | $ | — | ||||
Schedule of non-cash investing & financing activities | ||||||||
Stock issued for debt conversion | $ | 1,623,336 | $ | 398,878 | ||||
Derivative settlements | $ | 435,301 | $ | (50,586 | ) | |||
Discount from derivative | $ | 311,577 | $ | 185,000 | ||||
Preferred stock converted to common stock | $ | 786,315 | $ | — | ||||
Preferred stock issued for services | $ | 100,000 | $ | 500 | ||||
Cashless warrant exercise | $ | 72,049 | $ | — | ||||
Cancellation of common stock issued for services | $ | — | $ | (50,265 | ) |
The accompanying notes are an integral part of these financial statements
7
BREWBILT MANUFACTURING INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2021
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Located in Grass Valley, CA, BrewBilt is one of the only California companies that custom designs, hand crafts, and integrates processing, fermentation and distillation processing systems for the craft beer, cannabis and hemp industries using Best in Class American made components integrated with stainless steel processing vessels using only American made steel. Founded in 2014, the company began in a backyard shop by Jeff Lewis with a vision of creating a profitable company in Rural America by hiring excellent personnel, designing and fabricating products to exceed customers expectations and compensating craftsmen with living wages and profit sharing to financially sustain their families within the community. Mr. Lewis has 15+ years of experience as a craft beer brewer, a custom tank/vessel designer, fabrication and integration expert and business owner who initially founded Portland Kettle Works, a nationally recognized manufacturer of craft beer brewing equipment located in the Northwest. The Company has grown from 3 employees in 2015 to 7 in 2021.
BrewBilt has been built by having 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 that provide valuable product feedback and business expertise to management. The craft brewing & spirits industries continue to grow worldwide. California is where craft brewing began and now has over 900 operating breweries – being centrally located in this booming market was a large draw for BrewBilt to locate its manufacturing facility in the Sierra foothills.
All BrewBilt products are designed and fabricated as food grade quality which enables the company to build vessels for food & beverage processing , the company is now building systems that are pharmaceutical grade for clients involved in distillation for the cannabis and hemp industries, thus making the revenue potential much greater. BrewBilt buys materials and components mostly from California suppliers which enables them to closely monitor quality, while the companys revenues are generated from sales to customers throughout the country. The company is aggressively pursuing international orders and has held meetings with the Center for International Trade Development and U.S. Commercial Service to develop international opportunities. Presently, a great deal of sales interest in coming from Mexico, Japan, Europe, and Australia.
BrewBilt competes against a number of companies, most of which are selling mass produced equipment from China made from less costly inferior quality Chinese steel which often is neither food nor pharmaceutical grade quality. While this broader market is extremely competitive, there continues to be little competition and strong market demand for higher quality, custom designed, hand crafted and integrated systems that BrewBilt produces.
In July of 2016, BrewBilt moved from the small facility in Nevada City, CA to lease an eight thousand (8,000) square foot manufacturing facility in Grass Valley, CA. This facility was purchased by BrewBilt in January 2018 and upgraded with substantial tenant improvements. BrewBilt is prepared to expand again by leasing an additional seventy-six hundred (7,600) square feet in the same facility. BrewBilt obtains the majority of its leads through customer referrals and from online marketplaces. The companys website is being expanded for online sales to include online educational/marketing videos that feature the company and its expanded integrated product line for the cannabis and hemp industries. BrewBilt has also created distribution sales agreements with individuals and companies to represent BrewBilt in both the domestic and international markets.
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).
8
Fiscal year end
The Company has selected December 31 as its fiscal year end.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates.
Cash Equivalents
The Company considers all highly liquid investments with maturities of 90 days or less from the date of purchase to be cash equivalents.
COVID-19
The Company began seeing the impact of the COVID-19 pandemic on its business in early March 2020. The direct financial impact of the pandemic has primarily shown in significantly reduced production from the on-premises channel and higher labor and safety-related costs at the Companys manufacturing facility. In addition to these direct financial impacts, COVID-19 related safety measures resulted in a reduction of manufacturing productivity. The Company will continue to assess and manage this situation and will provide a further update in each quarterly earnings release, to the extent that the effects of the COVID-19 pandemic are then known more clearly.
Revenue Recognition and Related Allowances
The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally, this occurs with the transfer of control of its products. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. If the conditions for revenue recognition are not met, the Company defers the revenue and related cost of sales until all conditions are met. As of March 31, 2021 and December 31, 2020, the Company has deferred $1,530,671 and $71,280, respectively, in revenue, and $238,247 and $489 in cost of sales, respectively, related to customer orders in progress. These amounts are recorded as billings in excess of revenues and earnings in excess of billings in the accompanying balance sheets.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at the amount that management expects to collect from outstanding balances. Bad debts and allowances are provided based on historical experience and managements evaluation of outstanding accounts receivable. Management evaluates past due or delinquency of accounts receivable based on the open invoices aged on due date basis. The allowance for doubtful accounts at March 31, 2021 and December 31, 2020 is $0.
Inventories
Inventories consist of raw materials, work in process and finished goods. Raw materials, which principally consist of raw stainless steel, raw stainless tubing, motors, pumps, and fittings, are stated at the lower of cost, determined on the first-in, first-out basis, or net realizable value. During the year ended December 31, 2021, the Company wrote off $17,246 in obsolete inventory to the statement of operations. As of March 31, 2021 and December 31, 2020, the Company has inventory of $68,478 and $44,223, respectively.
Goodwill
The excess of the cost over the fair value of net assets of acquired in the Merger is recorded as goodwill. Goodwill is not subject to amortization, but is reviewed for impairment annually, or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. An impairment charge would be recorded to the extent the carrying value of goodwill exceeds its estimated fair value. The testing of goodwill under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations.
9
Warranty
The Company is a manufacturer of products which are shipped to our customers directly from the Company. For products that are made from raw materials, the Company offers a 6-year limited warranty. The parts provided by outside vendors as finished goods that are added to a system produced by the Company as components, have a manufacturers warranty that is passed on to the end user of the complete system. To date, BrewBilt has spent less than $5,000 over the past 5 years for repairs (under warranty) on products they have built, with most of the costs going to cover travel and lodging expenses. As of March 31, 2021 and December 31, 2020, the Company has recorded a liability of $5,000 and $5,000, respectively, for warranties, which is included in accrued liabilities in the accompanying balance sheet.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses are carried at amortized cost and represent liabilities for goods and services provided to the Company prior to the end of the fiscal year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.
In addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs is expanded. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels and which is determined by the lowest level input that is significant to the fair value measurement in its entirety.
These levels are:
Level 1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 - inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - inputs are generally unobservable and typically reflect managements estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
Financial assets and liabilities measured at fair value on a recurring basis:
Input | March 31, 2021 | December 31, 2020 | |||||||||
Level | Fair Value | Fair Value | |||||||||
Derivative Liability | 3 | $ | 1,935,295 | $ | 2,373,176 | ||||||
Total Financial Liabilities | $ | 1,935,295 | $ | 2,373,176 |
In managements 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 managements opinion that the Company is not exposed to significant interest, exchange or credit risks arising from these financial instruments. As of March 31, 2021 and December 31, 2020, the balances reported for cash, accounts receivable, prepaid expenses, accounts payable, and accrued liabilities, approximate the fair value because of their short maturities.
10
Income Taxes
The Company records deferred taxes in accordance with FASB ASC No. 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and loss carryforwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is more likely-than-not that a deferred tax asset will not be realized.
As of the date of this filing, the Company is not current in filing their tax returns. The last return filed by the Company was December 31, 2019, and the Company has not accrued any potential penalties or interest from that period forward. The Company will need to file returns for the year ending December 31, 2020, which is still open for examination.
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. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
Recent Accounting Pronouncements
Although there were new accounting pronouncements issued or proposed by the FASB during the three months ended March 31, 2021 and through the date of filing of this report, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.
NOTE 2 – GOING CONCERN
The Company has experienced net losses to date, and it has not generated sufficient revenue from operations to meet our operational overhead. We will need additional working capital to service debt and for ongoing operations, which raises substantial doubt about our ability to continue as a going concern. Management of the Company is preparing a strategy to meet operational shortfalls which may include equity funding, short term or long-term financing or debt financing, to enable the Company to reach profitable operations. Historically, the Companys sole officer and director has provided short term loans to meet working capital shortfalls. We have recently entered into financing agreements with various third parties to meet our capital needs in fiscal 2021.
The accompanying financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
NOTE 3 - PREPAID EXPENSES
Prepaid fees represent amounts paid in advance for future contractual benefits to be received. Contracting expenses paid in advance are recorded as a prepaid asset and then amortized to the statements of operations when services are rendered, or over the life of the contract using the straight-line method.
11
As of March 31, 2021 and December 31, 2020, prepaid expenses consisted of the following:
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Prepaid insurance expenses | $ | 4,950 | $ | 3,691 | ||||
Prepaid rent expense | 4,861 | 4,861 | ||||||
$ | 9,811 | $ | 8,552 |
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at March 31, 2021 and December 31, 2020:
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Computer Equipment | $ | 23,876 | $ | 23,876 | ||||
Leasehold Improvements | 59,121 | 59,121 | ||||||
Machinery | 257,088 | 250,762 | ||||||
Software | 23,183 | 17,688 | ||||||
Vehicles | 6,717 | 6,717 | ||||||
369,985 | 358,164 | |||||||
Less accumulated amortization | (3,395 | ) | (702 | ) | ||||
Less accumulated depreciation | (254,380 | ) | (248,123 | ) | ||||
$ | 112,210 | $ | 109,339 |
NOTE 5 – LEASES
The Company adopted the new lease guidance effective January 1, 2019 using the modified retrospective transition approach, applying the new standard to all of its leases existing at the date of initial application which is the effective date of adoption. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. We elected the package of practical expedients which permits us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date. We did not elect the hindsight practical expedient which permits entities to use hindsight in determining the lease term and assessing impairment. The adoption of the lease standard did not change our previously reported consolidated statements of operations and did not result in a cumulative catch-up adjustment to opening equity.
The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. In calculating the present value of the lease payments, the Company elected to utilize its incremental borrowing rate based on the remaining lease terms as of the January 1, 2019 adoption date.
Operating Leases
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred, if any. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Our lease has a remaining lease term of less than 4 years.
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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 entitys ongoing accounting. We have elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases where the initial lease term is one year or less or for which the ROU asset at inception is deemed immaterial, we will not recognize ROU assets or lease liabilities. Those leases are expensed on a straight-line basis over the term of the lease.
On January 1, 2018, the Company entered into a standard office lease for approximately 8,000 square feet of space, located in the Wolf Creek Industrial Building at 110 Spring Hill Dr. #10 Grass Valley, CA 95945. The lease has a term of 10 years, from January 1, 2018 through January 1, 2028, with a monthly rent of $4,861.
On January 1, 2020, the Company terminated the lease agreement dated January 1, 2018, and entered into a new office lease for the same space located in the Wolf Creek Industrial Building at 110 Spring Hill Dr. #10 Grass Valley, CA 95945. The lease has a term of 5 years, from January 1, 2020 through December 31, 2025, with a monthly rent of $4,861.
ROU assets and lease liabilities related to our operating lease is as follows:
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Right-of-use assets | $ | 236,494 | $ | 246,968 | ||||
Current operating lease liabilities | 43,707 | 42,977 | ||||||
Non-current operating lease liabilities | 192,787 | 203,991 |
The following is a schedule, by years, of future minimum lease payments required under the operating lease:
Years Ending | ||||
December 31, | Operating Lease | |||
2021 | $ | 43,751 | ||
2022 | 58,334 | |||
2023 | 58,334 | |||
2024 | 58,334 | |||
2025 | 58,335 | |||
Total | 277,088 | |||
Less imputed interest | 40,594 | |||
Total liability | $ | 236,494 |
NOTE 6 – ACCURED LIABILITIES
As of March 31, 2021 and December 31, 2020, accrued liabilities were comprised of the following:
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Accrued liabilities | ||||||||
Accrued wages | $ | 31,294 | $ | 123,663 | ||||
Credit card | 1,879 | 19,893 | ||||||
Customer deposits | 103,550 | 103,550 | ||||||
Sales tax payable | 86,209 | 34,891 | ||||||
Warranty | 5,000 | 5,000 | ||||||
Total accrued expenses | $ | 227,932 | $ | 286,997 |
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NOTE 7 – BILLINGS IN EXCESS OF REVENUE AND EARNINGS IN EXCESS OF BILLINGS
Billings in excess of revenue is related to contracted amounts that have been invoiced to customers for which remaining performance obligations must be completed before the Company can recognize the revenue. Earnings in excess of billings is related to the cost of sales associated with the customer products that are incomplete.
Changes in unearned revenue for the periods ended March 31, 2021 and December 31, 2020 were as follows:
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Unearned revenue, beginning of the period | $ | 71,280 | $ | 1,511,096 | ||||
Billings in excess of revenue during the period | 1,459,391 | 71,280 | ||||||
Recognition of unearned revenue in prior periods | — | (1,511,096 | ) | |||||
Unearned revenue, end of the period | $ | 1,530,671 | $ | 71,280 |
As of March 31, 2021 and December 31, 2020, the Company has recorded $238,247 and $489, respectively in earnings in excess of billings for the cost of sales related to customer orders in progress.
NOTE 8 – CONVERTIBLE NOTES PAYABLE
As of March 31, 2021 and December 31, 2020, notes payable were comprised of the following:
Original | Original | Due | Interest | Conversion | March 31, | December 31, | ||||||||||||||||
Note Amount | Note Date | Date | Rate | Rate | 2021 | 2020 | ||||||||||||||||
Auctus Fund #11 | 113,000 | 8/19/2020 | 8/19/2021 | 12% | Variable | 113,000 | 113,000 | |||||||||||||||
CBP #3 | 30,000 | 5/1/2020 | 5/1/2021 | 10% | Variable | 9,576 | 30,000 | |||||||||||||||
CBP #4 | 30,000 | 7/23/2020 | 7/23/2021 | 10% | Variable | 30,000 | 30,000 | |||||||||||||||
EMA Financial #6 | 80,500 | 8/17/2020 | 5/17/2021 | 12% | Variable | — | 80,500 | |||||||||||||||
EMA Financial #7 | 50,000 | 10/21/2020 | 7/21/2021 | 12% | Variable | 50,000 | 50,000 | |||||||||||||||
Emerging Corp Cap #1 | 83,333 | 2/12/2018 | 2/11/2019 | 22% | Variable | — | 34,857 | |||||||||||||||
Emerging Corp Cap #2 | 110,000 | 10/31/2018 | 10/31/2019 | 12% | Variable | 110,000 | 110,000 | |||||||||||||||
GPL Ventures #1 | 25,000 | 10/14/2020 | 10/14/2021 | 10% | Variable | 25,000 | 25,000 | |||||||||||||||
GPL Ventures #2 | 25,000 | 3/10/2021 | 3/10/2022 | 10% | Variable | 25,000 | — | |||||||||||||||
Mammoth Corp | 33,000 | 11/19/2020 | 8/19/2021 | 0% | Variable | 33,000 | 33,000 | |||||||||||||||
Optempus #1 | 25,000 | 7/2/2020 | 7/2/2021 | 10% | Variable | 25,000 | 25,000 | |||||||||||||||
Optempus #2 | 25,000 | 7/7/2020 | 7/2/2021 | 10% | Variable | 25,000 | 25,000 | |||||||||||||||
Optempus #3 | 15,000 | 11/24/2020 | 11/24/2021 | 10% | Variable | 15,000 | 15,000 | |||||||||||||||
Optempus #4 | 40,000 | 12/29/2020 | 12/29/2021 | 10% | Variable | 40,000 | 40,000 | |||||||||||||||
Power Up Lending #14 | 43,000 | 7/30/2020 | 7/30/2021 | 10% | Variable | — | 43,000 | |||||||||||||||
Power Up Lending #15 | 53,000 | 9/21/2020 | 9/21/2021 | 10% | Variable | — | 53,000 | |||||||||||||||
Power Up Lending #16 | 43,000 | 10/14/2020 | 10/14/2021 | 10% | Variable | 43,000 | 43,000 | |||||||||||||||
Power Up Lending #17 | 43,500 | 12/7/2020 | 12/7/2021 | 10% | Variable | 43,500 | 43,500 | |||||||||||||||
Power Up Lending #18 | 43,500 | 1/14/2021 | 1/14/2022 | 10% | Variable | 43,500 | — | |||||||||||||||
Power Up Lending #19 | 73,500 | 2/10/2021 | 2/10/2022 | 10% | Variable | 73,500 | — | |||||||||||||||
Tri-Bridge #1 | 15,000 | 5/26/2020 | 5/26/2021 | 10% | Variable | 15,000 | 15,000 | |||||||||||||||
Tri-Bridge #2 | 25,000 | 7/24/2020 | 7/24/2021 | 10% | Variable | 10,000 | 10,000 | |||||||||||||||
Tri-Bridge #4 | 25,000 | 2/24/2021 | 8/24/2021 | 10% | Variable | 25,000 | — | |||||||||||||||
$ | 754,076 | $ | 818,857 | |||||||||||||||||||
Debt discount | (556,156 | ) | (597,670 | ) | ||||||||||||||||||
Financing costs/Original issue discount | (45,587 | ) | (71,199 | ) | ||||||||||||||||||
Notes payable, net of discount | $ | 152,333 | $ | 149,988 |
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During the three months ending March 31, 2021, the Company received proceeds from new convertible notes of $185,000. The Company recorded no payments on their convertible notes and conversions of $256,781 of convertible note principal. The Company recorded loan fees on new convertible notes of $7,000, which increased the debt discounts recorded on the convertible notes during the three months ending March 31, 2021. All of the Companys convertible notes have a conversion rate that is variable, and therefore, the Company has accounted for their conversion features as derivative instruments (see Note 10). The Company also recorded amortization of $385,702 on their convertible note debt discounts and loan fees. As of March 31, 2021, the convertible notes payable are convertible into 372,720,010 shares of the Companys common stock.
During the three months ended March 31, 2021, the Company recorded interest expense of $26,016 on its convertible notes payable. During the three months ended March 31, 2021, the Company recorded conversions of $16,185 of note interest and $2,500 in conversion fees. As of March 31, 2021, the accrued interest balance was $79,762.
As of March 31, 2021, we have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities.
NOTE 9 – PROMISSORY NOTES PAYABLE
On June 19, 2020, the Company received funding pursuant to a promissory note. for $108,000 of which $93,090 was received in cash and $14,910 was recorded as transaction fees. The note bears interest of 12% (increases to 24% per annum upon an event of default) and matures on June 19, 2021. As of March 31, 2021, the company has amortized $11,642 of the financing costs to the statement of operations. As of March 31, 2021, the note has a principal balance of $108,000 and accrued interest of $10,119.
On January 5, 2021, the Company received funding pursuant to a promissory note. for $50,000 of which $39,000 was received in cash and $11,000 was recorded as transaction fees. The note bears interest of 12% (increases to 16% per annum upon an event of default) and matures on January 5, 2022. As of March 31, 2021, the company has amortized $2,562 of the financing costs to the statement of operations. As of March 31, 2021, the note has a principal balance of $50,000 and accrued interest of $1,397.
On March 17, 2021, the Company received funding pursuant to a promissory note. for $80,500 of which $70,000 was received in cash and $10,500 was recorded as transaction fees. The note bears interest of 12% (increases to 16% per annum upon an event of default) and matures on March 17, 2022. As of March 31, 2021, the company has amortized $422 of the financing costs to the statement of operations. As of March 31, 2021, the note has a principal balance of $80,500 and accrued interest of $371.
NOTE 10 – DERIVATIVE LIABIITIES
During the three months ended March 31, 2021, the Company valued the embedded conversion feature of the convertible notes and warrants. The Company uses the Black-Scholes option pricing model to estimate fair value for those instruments convertible into common shares at inception, at conversion or extinguishment date, and at each reporting date.
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The following table represents the Companys derivative liability activity for the embedded conversion features for the three months ended March 31, 2021:
Notes | Warrants | Total | ||||||||||
Balance, beginning of period | $ | 2,311,296 | $ | 61,880 | $ | 2,373,176 | ||||||
Initial recognition of derivative liability | 1,233,308 | 126,577 | 1,359,885 | |||||||||
Derivative settlements | (1,437,337 | ) | (345,833 | ) | (1,783,170 | ) | ||||||
Loss (gain) on derivative liability valuation | (551,954 | ) | 537,358 | (14,596 | ) | |||||||
Balance, end of period | $ | 1,555,313 | $ | 379,982 | $ | 1,935,295 |
Convertible Notes
The fair value at the commitment date for the convertible notes and warrants and the revaluation dates for the Companys derivative liabilities were based upon the following management assumptions as of March 31, 2021:
Valuation date | ||
Expected dividends | 0% | |
Expected volatility | 187.64% - 341.60% | |
Expected term | .12 - 1 year | |
Risk free interest | .01% - .18% |
Warrants
We account for common stock purchase warrants as derivative liabilities and debt issuance costs on the balance sheet at fair value, and changes in fair value during the periods presented in the statement of operations, which is revalued at each balance sheet date subsequent to the initial issuance of the warrant.
On June 19, 2020, the Company executed a Common Stock Purchase Warrant for 5,400,000 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.02 per share and expire on June 19, 2025.
On June 19, 2020, the Company executed a Common Stock Purchase Warrant for 5,400,000 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.02 per share and expire on June 19, 2025.
On July 23, 2020, the Company executed a Common Stock Purchase Warrant for 1,153,846 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.026 per share and expire on July 23, 2025.
On August 19, 2020, the Company executed a Common Stock Purchase Warrant for 5,650,000 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.02 per share and expire on August 19, 2025.
On August 19, 2020, the Company executed a Common Stock Purchase Warrant for 5,650,000 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.02 per share and expire on August 19, 2025.
On January 5, 2021, the Company executed a Common Stock Purchase Warrant for 25,000,000 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.002 per share and expire on January 5, 2026.
On January 5, 2021, the Company executed a Common Stock Purchase Warrant for 25,000,000 shares. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price of $0.002 per share and expire on January 5, 2026.
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During the three months ended March 31, 2021, warrant holders exercised the warrants and the Company issued 72,048,517 shares of common stock through a cashless exercise of the warrants in accordance with the conversion terms.
The Company evaluated all outstanding warrants to determine whether these instruments may be tainted. All warrants outstanding were considered tainted.
The fair value at the valuation dates were based upon the following management assumptions:
Valuation date | ||
Expected dividends | 0% | |
Expected volatility | 718.72% - 920.43% | |
Expected term | 4.22 - 5 years | |
Risk free interest | .27% - .64% |
NOTE 11 – RELATED PARTY TRANSACTIONS
Mr. Jef Lewis, Chief Executive Officer, Chairman of the Board, President, Secretary, and Treasurer
On November 22, 2019, the Company appointed Jeffrey Lewis as the new Chief Executive Officer, Chairman of the Board, Corporate President, Secretary, and Treasurer of the Company. The Company and Mr. Lewis entered into an Employee Agreement that included the issuance of 1,000 Preferred Series B Control Shares, and an annual salary of $200,000. Unpaid wages will accrue interest at 6% per annum and may be converted to restricted common stock at fair market value at the time of conversion. During the three months ended March 31, 2021, the Company accrued wages of $50,000, interest of $1,445 and made payments of $74,344. As of March 31, 2021, the Company owed Mr. Lewis $68,025 in accrued wages and $6,401 in accrued interest.
The Company is periodically advanced noninterest bearing operating funds from related parties. The advances are due on demand and unsecured. As of March 31, 2021 and December 31, 2020, the Company owed Mr. Lewis $743 and $743, respectively for advances to the Company.
Mr. Samuel Berry, Director
On November 22, 2019, the Company entered into a Consulting Agreement with Mr. Samuel Berry. Mr. Berry will receive an annual salary of $50,000, payable in quarterly installments at $12,500 per quarter. During the three months ended March 31, 2021, the Company accrued $50,000 in consulting fees and made $5,000 in payments in connection to his agreement. As of March 31, 2021, the Company owed Mr. Berry $125,667 in fees.
NOTE 12 – LONG TERM DEBT
As of March 31, 2021 and December 31, 2020, long term debt was comprised of the following:
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Long term debt | ||||||||
Equipment loan | 115,614 | 115,614 | ||||||
Line of credit | 105,917 | 104,155 | ||||||
Other loans | 61,588 | 61,588 | ||||||
Total long term debt | $ | 283,119 | $ | 281,357 |
Paycheck Protection Program Loan
On May 11, 2020, the Company was granted a loan (the Loan) from BSD Capital, LLC dba Lendistry, in the amount of $61,558, pursuant to the Paycheck Protection Program (the PPP) under Division A, Title I of the CARES Act, which was enacted March 27, 2020.
The Loan, which was in the form of a Note dated May 11, 2020, issued by the Borrower, matures on May 11, 2022, and bears interest at a rate of 1% per annum, payable monthly commencing on November 11, 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.
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NOTE 13 – PREFERRED STOCK
On March 28, 2017, the Company filed an amendment to its articles of incorporation designating 20,000 shares of its authorized preferred stock, par value $0.001 as Series B Voting Preferred Stock. The Series B Voting Preferred Stock shall have the right to vote the shares on any matter requiring shareholder approval on the basis of 4 times the votes of all the issued and outstanding shares of common stock, as well as any issued and outstanding preferred stock.
On July 1, 2019, the Company filed a Certificate of Amendment to increase the number of authorized Series A Preferred Stock to 30,000,000, with a par value of $0.001. Each share of Preferred Series A Stock shall have a value of $10 per share and will convert into common stock at the closing price of the common stock on the date of conversion. The Series A stock shall have no voting rights on corporate matters, unless and until the Series A shares are converted into Common Shares, at which time they will have the same voting rights as all Common Shareholders have; their consent shall not be required for taking any corporate action.
Pursuant to the Merger Agreement dated November 22, 2019, the Company will issue $5,000,000 worth of Preferred Series A Stock to Mr. Lewis. The number of Preferred Series A shares to be issued is 500,000 shares at a price of $10.00 per share and convertible pursuant the conversion rights as specified in the Articles of Incorporation and Certificate of Designation for the Company. As of December 31, 2019, the shares had not been issued, and the Company recorded a liability for unissued shares in the amount of $500, goodwill of $2,289,884 and $2,289,334 to additional paid in capital.
On March 1, 2020, 500,000 shares of Preferred Series A Shares were issued pursuant to the Merger Agreement, and a $500 liability for unissued shares was reclassed to equity.
On April 6, 2020, the Company executed an addendum to the Distribution & Licensing Agreement dated November 19, 2019, with Bgreen Partners, Inc. The Company issued 400,000 Preferred Series A shares at a price of $10.00 per share which are convertible pursuant the conversion rights as specified in the Articles of Incorporation and certificate of designation for the Company.
On October 15, 2020, the Company entered into an IP Purchase and License Agreement with Maguire & Associates, LLC in the amount of $5,000,000. The Company issued 500,000 Preferred Series A shares at a price of $10.00 per share which are convertible pursuant the conversion rights as specified in the Articles of Incorporation and certificate of designation for the Company.
On November 20, 2020, Mr. Lewis converted 70,000,000 common shares at a price of $.0018 per share into 54,000 Preferred Series A Shares at a price of $10 per share. The conversion resulted in a loss of $414,000 which was recorded to the statement of operations.
During the year ended December 31, 2020, 734,000 shares of Series A Preferred stock were converted to 2,416,667,054 common shares in accordance with the conversion terms. The issuances resulted in a loss on conversion of $1,572,272 which was recorded to the statement of operations.
On January 1, 2021, the Company issued 10,000 shares of Series A Preferred stock to Bennett Buchanan pursuant to his Consulting Agreement.
During the three months ended March 31, 2021, 172,500 shares of Series A Preferred stock were converted to 570,299,494 common shares in accordance with the conversion terms. The issuances resulted in a loss on conversion of $786,315 which was recorded to the statement of operations.
As of March 31, 2021, 30,000,000 Series A Preferred shares and 1,000 Series B Preferred shares were authorized, of which 957,500 Series A shares were issued and outstanding, and 1,000 Series B shares were issued and outstanding.
NOTE 14 – COMMON STOCK
On April 22, 2019, the Company approved the authorization of a 1 for 3,000 reverse stock split of the Companys outstanding shares of common stock. The Companys financial statements have been retroactively adjusted for this stock split for all periods presented.
During the year ended December 31, 2019, the holder of a convertible note converted $1,148 of accrued interest and $500 in conversion fees into 400,000 shares of common stock. The common stock was valued at $5,077 based on the market price of the Companys stock on the date of conversion.
On March 17, 2020, the Companys former President cancelled 8,008,334 shares of common stock issued to settle debt of $25,342 and $25,000 in stock based compensation pursuant to an employee agreement. The cancellation resulted in a liability of unissued shares of $25,000 and an increase in related party liabilities of $25,342. On December 31, 2020, Mr. Rushford agreed to forgive the debt and $50,342 was recorded to additional paid in capital.
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On March 25, 2020, the Company filed a Certificate of Amendment to increase the number of authorized common shares from 5,000,000,000 to 10,000,000,000 with a par value of $0.001.
On November 20, 2020, Mr. Lewis converted 70,000,000 common shares at a price of $.0018 per share into 54,000 Preferred Series A Shares at a price of $10 per share. The conversion resulted in a loss of $414,000 which was recorded to the statement of operations.
On December 4, 2020, the Company filed a Certificate of Amendment to increase the number of authorized common shares from 10,000,000,000 to 20,000,000,000 with a par value of $0.001.
During the year ended December 31, 2020, 734,000 shares of Series A Preferred stock were converted to 2,416,667,054 common shares in accordance with the conversion terms. The issuances resulted in a loss on conversion of $1,572,272 which was recorded to the statement of operations.
During the year ended December 31, 2020, the holders of a convertible notes converted $1,388,809 of principal, $351,376 of accrued interest and $39,275 in conversion fees into 1,023,817,685 shares of common stock. The common stock was valued at $8,141,166 based on the market price of the Companys stock on the date of conversion.
During the three months ended March 31, 2021, warrant holders exercised the warrants and the Company issued 72,048,517 shares of common stock through a cashless exercise of the warrants in accordance with the conversion terms.
During the three months ended March 31, 2021, 172,500 shares of Series A Preferred stock were converted to 570,299,494 common shares in accordance with the conversion terms. The issuances resulted in a loss on conversion of $786,315 which was recorded to the statement of operations.
During the three months ended March 31, 2021, the holders of a convertible notes converted $256,781 of principal, $16,185 of accrued interest and $2,500 in conversion fees into 175,060,588 shares of common stock. The common stock was valued at $1,623,336 based on the market price of the Companys stock on the date of conversion.
As of March 31, 2021, 20,000,000,000 were authorized, of which 4,351,431,054 shares are issued and outstanding.
NOTE 15 – INCOME TAX
Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Companys 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 Companys tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
The deferred tax asset and the valuation allowance consist of the following at March 31, 2021:
March 31, | ||||
2021 | ||||
Net operating loss | $ | 811,261 | ||
Statutory rate | 21 | % | ||
Expected tax recovery | 170,365 | |||
Change in valuation allowance | (170,365 | ) | ||
Income tax provision | $ | — | ||
Components of deferred tax asset: | ||||
Non-capital tax loss carry-forwards | 170,365 | |||
Less: valuation allowance | (170,365 | ) | ||
Net deferred tax asset | $ | — |
As of the date of this filing, the Company is not current in filing their tax returns. The last return filed by the Company was December 31, 2019, and the Company has not accrued any potential penalties or interest from that period forward. The Company will need to file returns for the year ending December 31, 2020, which is still open for examination.
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NOTE 16 – COMMITMENTS AND CONTINGENCIES
Consulting Agreement
On January 1, 2021, the Company entered into a Consulting Agreement with Bennett Buchanan to assist with marketing, advertising, customer relations, and licensing and compliance regulatory requirements. The term of the Agreement is for two years and may be terminated or extended upon mutual agreement of both parties pursuant with a thirty-day written notice. The Company will pay the Consultant a monthly fee of $3,000 and $100,000 in Series A Stock during the term of the agreement. In addition, the Consultant will receive a 2% commission on gross sales for each customer sale closed by the Consultant.
Operating Lease
On January 1, 2020, the Company entered into a new office lease for space located in the Wolf Creek Industrial Building at 110 Spring Hill Dr. #10 Grass Valley, CA 95945. The lease has a term of 5 years, from January 1, 2020 through December 31, 2025, with a monthly rent of $4,861.
Service Agreement
On June 12, 2018, the Company entered into a preventative maintenance service agreement with Atlas Copco Compressions LLC. The agreement is for a period of 5 years, at a cost of $145.13 per month.
NOTE 17 – SUBSEQUENT EVENTS
Subsequent Issuances
On April 6, 2021, 7,500 shares of Preferred Series A stock was converted into 50,000,000 shares of common stock.
On April 13, 2021, 10,000 shares of Preferred Series A stock was issued to employee Jesse Prim at $10 per share.
On April 13, 2021, 10,000 shares of Preferred Series A stock was issued to employee Corbin Boyle at $10 per share.
On April 15, 2021, 18,900 shares of Preferred Series A stock was converted into 60,000,000 shares of common stock.
On April 15, 2021, the holder of a convertible note converted a total of $45,150 of principal and interest into 19,630,435 shares of our common stock.
On April 19, 2021, 15,000 shares of Preferred Series A stock was converted into 125,000,000 shares of common stock.
On April 28, 2021, the holder of a convertible note converted a total of $54,123 of principal, interest, and fees into 29,161,255 shares of our common stock.
The Company has evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no additional subsequent events to disclose.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis summarizes the significant factors affecting our consolidated results of operations, financial condition and liquidity position for the three months ended March 31, 2021. This discussion and analysis should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for our year-ended December 31, 2020 and the consolidated unaudited financial statements and related notes included elsewhere in this filing. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as may, should, intends, expects, plans, anticipates, believes, estimates, predicts, potential, or continue or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industrys actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results, later events, or circumstances or to reflect the occurrence of unanticipated events.
In this report unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to common shares refer to the common shares of our capital stock.
The managements discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
As used in this quarterly report, the terms we, us, our, and our company means BrewBilt Manufacturing, Inc., unless otherwise indicated.
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RESULTS OF OPERATIONS
Results for the Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020
Revenues:
The Companys revenues were $13,251 for the three months ended March 31, 2021 compared to $38,934 for the three months ended March 31, 2020. The decrease is due to fewer projects being completed and delivered to customers in Q1 2021. In addition, the average revenue per job for the customer orders that were completed were lower in Q1 2021 compared to Q1 2020.
Cost of Sales:
The Companys cost of materials was $7,614 for the three months ended March 31, 2021, compared to $21,623 for the three months ended March 31, 2020. The decrease is due to fewer completed jobs in Q1 2021.
Operating Expenses:
Operating expenses consisted primarily of consulting fees, professional fees, salaries and wages, office expenses and fees associated with preparing reports and SEC filings relating to being a public company. Operating expenses for the three months ended March 31, 2021, and March 31, 2020, were $404,001 and $302,492, respectively. The increase is primarily attributable to an increase in consulting fees and professional fees.
Other Income (Expense):
Other income (expense) for the three months ended March 31, 2021 and March 31, 2020 was $(2,239,394) and $(1,851,208), respectively. Other income (expense) consisted of losses on derivative valuation, losses on conversion on preferred stock to common stock and interest expense. The loss on derivative valuation is directly attributable to the change in fair value of the derivative liability. Interest expense is primarily attributable the initial interest expense associated with the valuation of derivative instruments at issuance and the accretion of the convertible debentures over their respective terms. The variance primarily resulted from an increase in interest expense and a loss on conversion of Preferred Series A stock to common stock.
Net Loss:
Net loss for the three months ended March 31, 2021 was $2,637,758 compared with $2,136,389 for the three months ended March 31, 2020. The increased loss can be explained by and increase in operating expenses, interest expenses and a loss on conversion of Preferred Series A stock to common stock.
Impact of Inflation
We believe that the rate of inflation has had a negligible effect on our operations.
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Liquidity and Capital Resources
March 31, 2021 | December 31, 2020 | |||||||
$ | $ | |||||||
Current Assets | 1,606,731 | 223,729 | ||||||
Current Liabilities | 5,358,719 | 4,281,072 | ||||||
Working Capital (Deficit) | (3,751,988 | ) | (4,057,343 | ) |
As of March 31, 2021, the Company had $379,857 and $1,972,415 in cash and total assets, as well as $5,834,625 in total liabilities as compared to $72,764 and $597,016 in cash and total assets, and $4,766,420 in total liabilities as of December 31, 2020. The increase in working capital is due to an increase in cash on hand due to funds from notes payable, and an increase in accounts receivable for new sales closed in Q1 2021.
The Company requires additional capital to fully execute its marketing program and increase revenues. There can be no assurance that continued funding will be available on satisfactory terms. We intend to raise additional capital through the sale of equity, loans, or other short-term financing options.
March 31, 2021 | March 31, 2020 | |||||||
$ | $ | |||||||
Cash Flows from (used in) Operating Activities | 127,182 | (235,892 | ) | |||||
Cash Flows from (used in) Investing Activities | (11,821 | ) | 12,403 | |||||
Cash Flows from (used in) Financing Activities | 191,752 | 222,665 | ||||||
Net Increase (decrease) in Cash During Period | 307,093 | (824 | ) |
During the three months ended March 31, 2021, cash from (used in) operating activities was $127,182 compared to $(235,892) for the three months ended March 31, 2020. The variance primarily resulted from increases in amortization of debt discounts, losses on conversions, share based compensation and billings in excess of revenues during the three months ended March 31, 2021.
During the three months ended March 31, 2021 cash from investing activities was $(11,821) compared to $12,403 for the three months ended March 31, 2020. The variance in cash from investing activity is due fixed assets purchased in the first quarter 2021.
During the three months ended March 31, 2021 cash from (used in) financing activities was $191,732 compared to $222,665 for the three months ended March 31, 2020. The variance in cash from financing activity is due to the change in related party liabilities.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are more fully discussed in the Notes to our Financial Statements, included herein.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Managements Report on Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our management, including our president and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure.
As of the end of the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our president and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president and chief financial officer (our principal executive officer, principal financial officer, and principal accounting officer) concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report. Our company is in the process of adopting specific internal control mechanisms to ensure effectiveness as we grow, and we will work to retain additional qualified individuals to ensure a proper segregation of duties. We have engaged an outside consultant to assist in adopting new measures to improve upon our internal controls. Future controls, among other things, will include more checks and balances and communication strategies between the management and the board, once we are able to secure additional board members, to ensure efficient and effective oversight over company activities as well as more stringent accounting policies to track and update our financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers, or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.
A smaller reporting company is not required to provide the information required by this Item.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Quarterly Issuances
On January 1, 2021, the Company issued 10,000 shares of Series A Preferred stock to Bennett Buchanan pursuant to his Consulting Agreement.
During the three months ended March 31, 2021, 172,500 shares of Series A Preferred stock were converted to 570,299,494 common shares in accordance with the conversion terms. The issuances resulted in a loss on conversion of $786,315 which was recorded to the statement of operations.
During the three months ended March 31, 2021, warrant holders exercised the warrants and the Company issued 72,048,517 shares of common stock through a cashless exercise of the warrants in accordance with the conversion terms.
During the three months ended March 31, 2021, the holders of a convertible notes converted $256,781 of principal, $16,185 of accrued interest and $2,500 in conversion fees into 175,060,588 shares of common stock. The common stock was valued at $1,623,336 based on the market price of the Companys stock on the date of conversion.
In respect of the aforementioned convertible loan agreement(s) and the underlying shares, as well as shares issued to a director and consultant, the Company will claim an exemption from the registration requirements of the Securities Act of 1933, as amended, for the issuance of the shares pursuant to Section 4(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transaction does not involve a public offering, the purchasers are accredited investors and/or qualified institutional buyers, the purchasers have access to information about the Company and its purchase, the purchasers will take the securities for investment and not resale.
Other than as disclosed above, there were no unregistered securities to report which were sold or issued by the Company without the registration of these securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements, within the period covered by this report, which have not been previously included in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
None.
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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 |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BrewBilt Manufacturing Inc. | |
Date: May 14, 2021 | By: /s/ Jef Lewis |
Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Exhibit 31.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14
I, Jef Lewis, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of BrewBilt Manufacturing Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 14, 2021 | ||
/s/ Jef Lewis | ||
By: Jef Lewis | ||
Its: Principal Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14
I, Jef Lewis, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of BrewBilt Manufacturing Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 14, 2021 | ||
/s/ Jef Lewis | ||
By: Jef Lewis | ||
Its: Principal Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of BrewBilt Manufacturing Inc. (the Company) on Form 10-Q for the period ending March 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Jef Lewis, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Jef Lewis | |
By: Jef Lewis | |
Principal Executive Officer and Principal Financial Officer | |
Dated: May 14, 2021 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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