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 customer’s 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 company’s 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 company’s 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”).
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 Company’s 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 management’s evaluation of outstanding accounts receivable. Management evaluates
past due or delinquency of accounts receivable based on the open invoices aged on due date basis. The allowance for doubtful accounts
at March 31, 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.
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 management’s estimates of assumptions that market participants
would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include
option pricing models, discounted cash flow models, and similar techniques.
Financial
assets and liabilities measured at fair value on a recurring basis:
|
|
Input
|
|
|
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
management’s opinion, the fair value of convertible notes payable and advances payable is approximate to carrying value
as the interest rates and other features of these instruments approximate those obtainable for similar instruments in the current
market. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, exchange
or credit risks arising from these financial instruments. As of March 31, 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.
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 Company’s 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.
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.
The
Company has elected the practical expedient to combine lease and non-lease components as a single component. The lease
expense is recognized over the expected term on a straight-line basis. Operating leases are recognized on the balance sheet as
right-of-use assets, current operating lease liabilities and non-current operating lease liabilities.
The
new standard also provides practical expedients and certain exemptions for an entity’s ongoing accounting. We have elected
the short-term lease recognition exemption for all leases that qualify. This means, for those leases where the initial lease term
is one year or less or for which the ROU asset at inception is deemed immaterial, we will not recognize ROU assets or lease liabilities.
Those leases are expensed on a straight-line basis over the term of the lease.
On
January 1, 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
|
|
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
|
|
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 Company’s convertible notes have a conversion rate that is variable, and therefore, the
Company has accounted for their conversion features as derivative instruments (see Note 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 Company’s 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.
The
following table represents the Company’s 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 Company’s 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.
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.
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 Company’s outstanding shares of common stock. The Company’s 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 Company’s stock on the date of conversion.
On March 17, 2020, the Company’s
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.
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 Company’s
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 Company’s
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 Company’s
assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences
are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences
attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
The deferred tax asset and the valuation allowance consist of
the following at March 31, 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.
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.