NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2022
(unaudited)
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 brewing, fermentation
and distilling systems for the craft beer industry using “Best in Class” American made stainless steel. Founded by Jeff Lewis
in 2014 with a vision of creating a profitable company by hiring excellent local craftsmen, designing and building products to exceed
customers’ expectations Mr. Lewis now has over 20 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.
BrewBilt
has strong relationships with suppliers of raw materials, equipment, and services globally, in addition an aggressive referral network
of satisfied customers nationwide. 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 950 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
and beverage processing. BrewBilt buys materials and components mostly from suppliers which enables BrewBilt to closely monitor quality,
while the company’s revenues are generated from sales to customers throughout the world a great deal of specific interest in coming
from Mexico, Japan, Europe, and Australia.
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 obtains the majority of its leads through customer referrals and from online marketplaces. The company’s website has expanded
to include online sales and online educational/marketing videos that feature the company and its expanded product line of brewing accessories.
BrewBilt has also created distribution sales agreements with individuals and companies to represent BrewBilt in both the domestic and
international markets.
Amendments
to Previously Reported Annual Financial Information
The
Company’s previously issued financial statements for the three months ended March 31, 2021, as included in its Form 10-Q filed
on May 14, 2021, have been restated since the Company improperly classified the Series A preferred stock in permanent equity as opposed
to liability pursuant to ASC 480-10-25-14(A), since the financial instrument embodies an unconditional obligation to transfer a variable
number of shares and the monetary value of such obligation is based solely on a fixed amount known at inception.
Financial
Statement Presentation
The
audited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”).
Business
Combinations
As
per ASC 805-50 a common-control transaction does not meet the definition of a business combination because there is no
change in control over the net assets. The accounting for these transactions is addressed in the “Transactions Between Entities
Under Common Control”. The net assets are derecognized by the transferring entity and recognized by the receiving entity at the
historical cost of the parent of the entities under common control. Any difference between the proceeds transferred or received and the
carrying amounts of the net assets is recognized in equity in the transferring and receiving entities’ separate financial statements
and eliminated in consolidation. The change in accounting principle is applied retroactively for all periods presented.
Fiscal
year end
The
Company has selected December 31 as its fiscal year end.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may
be based upon amounts that differ from these estimates.
Cash
Equivalents
The
Company considers all highly liquid investments with maturities of 90 days or less from the date of purchase to be cash equivalents.
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, 2022 and December 31, 2021, the Company has deferred $1,518,587 and $1,104,923, respectively, in revenue, and
$1,053,696 and $880,494 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,
2022 and December 31, 2021 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 $39,434 in obsolete inventory to the statement of operations. As
of March 31, 2022 and December 31, 2021, the Company has inventory of $162,908 and $147,859, 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.
Capitalized
Distribution Fees
The
Company records its intangible assets at cost in accordance with ASC 350, Intangibles – Goodwill and Other. The Company reviews
the intangible assets for impairment on an annual basis or if events or changes in circumstances indicate it is more likely than not
that they are impaired. These events could include a significant change in the business climate, legal factors, a decline in operating
performance, competition, sale, or disposition of a significant portion of the business, or other factors. If the review indicates the
impairment, an impairment loss would be recorded for the difference of the value recorded and the new value. For the periods ended March
31, 2022, and December 31, 2021, there were no impairment losses recognized for intangible assets. The Company amortizes the capitalized
distribution fees over a term of five years in connection with the distribution agreement.
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, 2022 and December 31, 2021, the Company has recorded
a liability of $5,000 and $5,000, respectively, for warranties, which is included in accrued liabilities in the accompanying balance
sheet.
Accounts
Payable and Accrued Expenses
Accounts
payable and accrued expenses are carried at amortized cost and represent liabilities for goods and services provided to the Company prior
to the end of the fiscal year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase
of these goods and services.
Fair
Value of Financial Instruments
Fair
value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction
between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The
fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions
specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our
own credit risk.
In
addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy
for valuation inputs is expanded. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in
measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, and which is determined
by the lowest level input that is significant to the fair value measurement in its entirety.
These
levels are:
Level
1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level
2 - inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments
in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market
or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level
3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would
use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing
models, discounted cash flow models, and similar techniques.
Financial
assets and liabilities measured at fair value on a recurring basis:
Summary of the fair value of our derivative liabilities
| | |
Input | | |
March 31, 2022 | | |
December 31, 2021 | |
| | |
Level | | |
Fair Value | | |
Fair Value | |
| Derivative Liability | |
| 3 | | |
$ | 336,167 | | |
$ | 882,706 | |
| Total Financial Liabilities | |
| | | |
$ | 336,167 | | |
$ | 882,706 | |
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, 2022 and December 31, 2021, the balances reported for cash, accounts receivable, prepaid
expenses, accounts payable, and accrued liabilities, approximate the fair value because of their short maturities.
Debt
issuance costs and debt discounts
Debt
issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective
interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying consolidated balance sheets.
Income
Taxes
The
Company records deferred taxes in accordance with FASB ASC No. 740, Income Taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets
and liabilities and loss carryforwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation
allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
As
of the date of this filing, the Company is not current in filing their tax returns. The last return filed by the Company was December
31, 2019, and the Company has not accrued any potential penalties or interest from that period forward. The Company will need to
file returns for the year ending December 31, 2021 and 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 ending March 31, 2022 and through the
date of filing of this report, the Company does not believe any of these accounting pronouncements has had or will have a material impact
on its financial position or results of operations.
NOTE
2 – GOING CONCERN
The
accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of March 31, 2022, the
Company has a shareholders’ deficit of $15,989,607 since its inception, working capital deficit of $2,907,356, negative cash flows
from operations, and has limited business operations, which raises substantial doubt about the Company’s ability to continue as
going concern. The ability of the Company to meet its commitments as they become payable is dependent on the ability of the Company to
obtain necessary financing or achieving a profitable level of operations. There is no assurance the Company will be successful in achieving
these goals.
The
Company does not have sufficient cash to fund its desired production for the next 12 months. The Company has arranged financing and intends
to utilize the cash received to cover ongoing operational expenses. The Company plans to seek additional financing if necessary, in private
or public equity offering(s) to secure future funding for operations. There can be no assurance the Company will be successful in raising
additional funding. If the Company is not able to secure additional funding, the implementation of the Company’s business plan
will be impaired. There can be no assurance that such additional financing will be available to the Company on acceptable terms or at
all.
NOTE
3 - PREPAID EXPENSES
Prepaid
fees represent amounts paid in advance for future contractual benefits to be received. Contracting expenses paid in advance are recorded
as a prepaid asset and then amortized to the statements of operations when services are rendered, or over the life of the contract using
the straight-line method.
As
of March 31, 2022 and December 31, 2021, prepaid expenses consisted of the following:
Schedule of Prepaid Expenses
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Prepaid insurance expenses | |
$ | 3,944 | | |
$ | 8,217 | |
| Prepaid consulting expenses | |
| — | | |
| 40,000 | |
| Prepaid rent expense | |
| 4,861 | | |
| — | |
| Prepaid Expense | |
$ | 8,805 | | |
$ | 48,217 | |
On
September 15, 2021, Bennett Buchanan was appointed to serve as a director of BrewBilt Manufacturing, Inc. In connection with Mr.
Buchanan’s appointment, the Company agreed to repurchase 10,000 shares of Series A Convertible Preferred Stock from Mr. Buchanan
issued to him under his Consulting Agreement dated January 1, 2021, for an aggregate purchase price of $100,000, payable in five installments
of $20,000 each over the six month period following his appointment as a director. During the year ended December 31, 2021, the company
recorded payments of $40,000 in connection with this agreement. It recognized $80,000 in consulting fees in 2021 and $40,000 was recognized
in the first quarter of 2022.
NOTE
4 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following at March 31, 2022 and December 31, 2021:
Schedule of Property and Equipment
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Computer Equipment | |
$ | 23,876 | | |
$ | 23,876 | |
| Leasehold Improvements | |
| 131,890 | | |
| 131,890 | |
| Machinery | |
| 352,187 | | |
| 352,187 | |
| Software | |
| 23,183 | | |
| 23,183 | |
| Vehicles | |
| 6,717 | | |
| 6,717 | |
| Property, Plant and Equipment, Gross | |
| 537,853 | | |
| 537,853 | |
| Less accumulated amortization | |
| (17,223 | ) | |
| (14,198 | ) |
| Less accumulated depreciation | |
| (287,747 | ) | |
| (274,447 | ) |
| Property, Plant and Equipment, Net | |
$ | 232,883 | | |
$ | 249,208 | |
During
the year ended December 31, 2021, the company recorded fixed assets additions of $276,035 and fixed asset proceeds of $90,746. Depreciation
and amortization expenses of $16,325 and $45,420 were recorded to the statement of operations for the periods ended March 31, 2022 and
December 31, 2021, respectively.
NOTE
5 – LEASES
The
Company adopted the new lease guidance effective January 1, 2019 using the modified retrospective transition approach, applying
the new standard to all of its leases existing at the date of initial application which is the effective date of adoption. Consequently,
financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods
before January 1, 2019. We elected the package of practical expedients which permits us to not reassess (1) whether any expired
or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) any initial direct
costs for any existing leases as of the effective date. We did not elect the hindsight practical expedient which permits entities to
use hindsight in determining the lease term and assessing impairment. The adoption of the lease standard did not change our previously
reported consolidated statements of operations and did not result in a cumulative catch-up adjustment to opening equity.
The
interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing
rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar
economic environment. In calculating the present value of the lease payments, the Company elected to utilize its incremental borrowing
rate based on the remaining lease terms as of the January 1, 2019 adoption date.
Operating
Leases
Operating
lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over
the lease term at the commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives
and initial direct costs incurred, if any. Our lease terms may include options to extend or terminate the lease when it is reasonably
certain that we will exercise that option. Our lease has a remaining lease term of less than three years.
The
Company has elected the practical expedient to combine lease and non-lease components as a single component. The lease expense
is recognized over the expected term on a straight-line basis. Operating leases are recognized on the balance sheet as right-of-use assets,
current operating lease liabilities and non-current operating lease liabilities.
The
new standard also provides practical expedients and certain exemptions for an entity’s ongoing accounting. We have elected the
short-term lease recognition exemption for all leases that qualify. This means, for those leases where the initial lease term is one
year or less or for which the ROU asset at inception is deemed immaterial, we will not recognize ROU assets or lease liabilities. Those
leases are expensed on a straight-line basis over the term of the lease.
On
January 1, 2020, the Company entered into a standard office lease for approximately 8,000 square feet of space, located in the Wolf Creek
Industrial Building at 110 Spring Hill Dr. #10 Grass Valley, CA 95945. The lease has a term of five years, from January 1, 2020 through
December 31, 2025, with a monthly rent of $4,861.
As
of March 31, 2022 and December 31, 2021, ROU assets and lease liabilities related to our operating lease is as follows:
Schedule of Right of use of assets and lease liabilities
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Right-of-use assets | |
$ | 192,787 | | |
$ | 203,991 | |
| Current operating lease liabilities | |
| 46,750 | | |
| 45,970 | |
| Non-current operating lease liabilities | |
| 146,037 | | |
| 158,021 | |
The
following is a schedule, by years, of future minimum lease payments required under the operating lease:
Schedule of future minimum lease payments
| Years Ending | |
| |
| December 31, | |
Operating Lease | |
| 2022 | |
$ | 43,751 | |
| 2023 | |
| 58,334 | |
| 2024 | |
| 58,334 | |
| 2025 | |
| 58,335 | |
| Total | |
| 218,754 | |
| Less imputed interest | |
| 25,967 | |
| Total liability | |
$ | 192,787 | |
NOTE
6 – INTANGIBLES
On
August 20, 2021, the company entered into an Exclusive Distribution Agreement with South Pacific Traders Oy. Pursuant to the agreement,
the company will issue 50,000 Series A Convertible Preferred stock at $10 per share. South Pacific Traders will market BrewBilt Manufacturing
equipment to the European Community and United Kingdom. Management determined that the 50,000 Series A Convertible Preferred to be issued
as consideration for the exclusive distribution agreement is a finite-lived intangible asset and will be amortized over the five year
term of the agreement. On January 17, 2022, the company issued 50,000 shares, and $500,000 was reclassified from Convertible Stock Payable
to Series A Convertible Preferred Stock. During the three month period ending March 31, 2022, the company amortized $25,000 of the capitalized
distribution fees to the statement of operations.
NOTE
7 – ACCRUED LIABILITIES
As
of March 31, 2022 and December 31, 2021, accrued liabilities were comprised of the following:
Schedule of Accrued Liabilities
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Accrued liabilities | |
| | | |
| | |
| Accrued wages | |
$ | 31,294 | | |
$ | 31,294 | |
| Credit card | |
| 6,223 | | |
| 6,045 | |
| Customer deposits | |
| — | | |
| — | |
| Sales tax payable | |
| 72,733 | | |
| 76,751 | |
| Warranty | |
| 5,000 | | |
| 5,000 | |
| Total accrued expenses | |
$ | 115,250 | | |
$ | 119,090 | |
NOTE
8 – BILLINGS IN EXCESS OF REVENUE AND EARNINGS IN EXCESS OF BILLINGS
Billings
in excess of revenue is related to contracted amounts that have been invoiced to customers for which remaining performance obligations
must be completed before the Company can recognize the revenue. Earnings in excess of billings is related to the cost of sales associated
with the customer jobs that are incomplete.
Changes
in unearned revenue for the periods ended March 31, 2022 and December 31, 2021 were as follows:
Schedule
of Changes in Unearned Revenues
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Unearned revenue, beginning of the period | |
$ | 1,104,923 | | |
$ | 71,280 | |
| Billings in excess of revenue during the period | |
| 413,664 | | |
| 1,722,715 | |
| Recognition of unearned revenue in prior periods | |
| — | | |
| (689,072 | ) |
| Unearned revenue, end of the period | |
$ | 1,518,587 | | |
$ | 1,104,923 | |
As
of March 31, 2022 and December 31, 2021, the Company has recorded $1,053,696 and $880,494, respectively in earnings in excess of billings
for the cost of sales related to customer orders in progress.
NOTE
9 – CONVERTIBLE NOTES PAYABLE
As
of March 31, 2022 and December 31, 2021, notes payable were comprised of the following:
Schedule
of Convertible Notes Payable
| | |
Original | | |
Original | |
Due | |
Interest | |
Conversion | |
March 31, | | |
December 31, | |
| | |
Note Amount | | |
Note Date | |
Date | |
Rate | |
Rate | |
2022 | | |
2021 | |
| CBP #3 | |
| 30,000 | | |
5/1/2020 | |
5/1/2021 | |
15% | |
Variable | |
| 9,576 | | |
| 9,576 | |
| CBP #4 | |
| 30,000 | | |
7/23/2020 | |
7/23/2021 | |
15% | |
Variable | |
| 30,000 | | |
| 30,000 | |
| Emerging Corp Cap #2 | |
| 110,000 | | |
10/31/2018 | |
10/31/2019 | |
24% | |
Variable | |
| 110,000 | | |
| 110,000 | |
| GPL Ventures #3 | |
| 240,000 | | |
5/6/2021 | |
5/6/2022 | |
10% | |
0.001 | |
| — | | |
| 240,000 | |
| Mammoth Corp #1 | |
| 33,000 | | |
11/19/2020 | |
8/19/2021 | |
18% | |
Variable | |
| 33,000 | | |
| 33,000 | |
| Mammoth Corp #2 | |
| 60,000 | | |
12/30/2021 | |
12/30/2022 | |
0% | |
Variable | |
| 60,000 | | |
| 60,000 | |
| Mammoth Corp #3 | |
| 26,800 | | |
03/21/22 | |
12/21/22 | |
0% | |
Variable | |
| 26,800 | | |
| — | |
| Mast Hill Fund | |
| 550,000 | | |
10/6/2021 | |
10/6/2022 | |
12% | |
0.0015 | |
| 550,000 | | |
| 550,000 | |
| Optempus #1 | |
| 25,000 | | |
7/2/2020 | |
7/2/2021 | |
22% | |
Variable | |
| 25,000 | | |
| 25,000 | |
| Optempus #2 | |
| 25,000 | | |
7/7/2020 | |
7/2/2021 | |
22% | |
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 #23 | |
| 43,750 | | |
8/11/2021 | |
8/11/2022 | |
10% | |
Variable | |
| — | | |
| 43,750 | |
| Power Up Lending #24 | |
| 48,750 | | |
9/14/2021 | |
9/14/2022 | |
10% | |
Variable | |
| — | | |
| 48,750 | |
| Power Up Lending #25 | |
| 43,750 | | |
10/8/2021 | |
10/8/2022 | |
10% | |
Variable | |
| — | | |
| 43,750 | |
| Tri-Bridge #3 | |
| 25,000 | | |
1/14/2021 | |
7/14/2021 | |
10% | |
Variable | |
| — | | |
| 25,000 | |
| Tri-Bridge #4 | |
| 25,000 | | |
2/24/2021 | |
8/24/2021 | |
10% | |
Variable | |
| — | | |
| 25,000 | |
| Tri-Bridge #5 | |
| 240,000 | | |
5/6/2021 | |
5/6/2022 | |
10% | |
0.001 | |
| 240,000 | | |
| 240,000 | |
| Red Road | |
| 135,000 | | |
2/25/2022 | |
2/25/2023 | |
10% | |
Variable | |
| 135,000 | | |
| — | |
| | |
| | | |
| |
| |
| |
| |
$ | 1,299,376 | | |
$ | 1,563,826 | |
| Debt discount | |
| (314,500 | ) | |
| (527,933 | ) |
| Financing costs/Original issue discount | |
| (67,553 | ) | |
| (125,831 | ) |
| Notes payable, net of discount | |
$ | 917,323 | | |
$ | 910,062 | |
During
the three months ending March 31, 2022, the Company received proceeds from new convertible notes of $158,000. The Company recorded $66,488
in penalties, payments of $153,611 on their convertible notes and conversions of $339,126 of convertible note principal. The Company
recorded loan fees on new convertible notes of $3,800, which increased the debt discounts recorded on the convertible notes during the
three months ending March 31, 2022. Some of the Company’s convertible notes have a conversion rate that is variable, and therefore,
the Company has accounted for their conversion features as derivative instruments (see Note 11). The Company also recorded amortization
of $341,511 on their convertible note debt discounts and loan fees. As of March 31, 2022, the convertible notes payable are convertible
into 7,750,003,778 shares of the Company’s common stock.
During
the three months ended March 31, 2022, the Company recorded interest expense of $45,812 and conversions of $27,602 on its convertible
notes payable. As of March 31, 2022, the accrued interest balance was $167,312.
As
of March 31, 2022, we have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions
and activities.
NOTE
10 – PROMISSORY NOTES PAYABLE
On
January 5, 2021, the Company received funding pursuant to a promissory note in the amount of $50,000, of which, $39,000 was received
in cash and $11,000 was recorded as transaction fees. The note bears interest of 12% (increases to 16% per annum upon an event of default)
and matures on January 5, 2022. As of March 31, 2022, the company has amortized $11,000 of the financing costs to the statement of operations.
As of March 31, 2022, the note has a principal balance of $50,000 and accrued interest of $7,863.
On
July 15, 2021, the Company received funding pursuant to a promissory note in the amount of $75,000, of which $62,500 was received in
cash and $12,500 was recorded as transaction fees. The note bears interest of 12% (increases to 16% per annum upon an event of default)
and matures on July 15, 2022. As of March 31, 2022, the company has amortized $8,870 of the financing costs to the statement of operations.
As of March 31, 2022, the note has a principal balance of $75,000 and accrued interest of $6,386.
On
September 14, 2021, the Company received funding pursuant to a promissory note in the amount of $100,000, of which, $82,500 was received
in cash and $17,500 was recorded as transaction fees. The note bears interest of 12% (increases to 16% per annum upon an event of default)
and matures on September 14, 2022. As of March 31, 2022, the company has amortized $9,493 of the financing costs to the statement of
operations. As of March 31, 2022, the note has a principal balance of $100,000 and accrued interest of $6,510.
NOTE
11 – DERIVATIVE LIABIITIES
During
the three months ended March 31, 2022, 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, 2022:
Schedule
of Activity of Derivative Liabilities
| | |
Notes | | |
Warrants | | |
Total | |
| Balance, beginning of period | |
$ | 736,994 | | |
$ | 145,712 | | |
$ | 882,706 | |
| Initial recognition of derivative liability | |
| 94,411 | | |
| — | | |
| 94,411 | |
| Derivative settlements | |
| (521,712 | ) | |
| — | | |
| (521,712 | ) |
| Loss (gain) on derivative liability valuation | |
| 2,189 | | |
| (121,427 | ) | |
| (119,238 | ) |
| Balance, end of period | |
$ | 311,882 | | |
$ | 24,285 | | |
$ | 336,167 | |
Convertible
Notes
The
fair value at the commitment date for the convertible notes and the revaluation dates for the Company’s derivative liabilities
were based upon the following management assumptions as of March 31, 2022:
| | |
Valuation date | |
| Expected dividends | |
| 0% | |
| Expected volatility | |
| 116.60% - 264.64% | |
| Expected term | |
| .01 - .75 years | |
| Risk free interest | |
| .02% - 1.40% | |
Warrants
We
account for common stock purchase warrants as derivative liabilities and debt issuance costs on the balance sheet at fair value, and
changes in fair value during the periods presented in the statement of operations, which is revalued at each balance sheet date subsequent
to the initial issuance of the warrant.
The
fair value at the commitment date for the warrants and the revaluation dates for the Company’s derivative liabilities were based
upon the following management assumptions as of March 31, 2022:
| | |
Valuation date | |
| Expected dividends | |
| 0% | |
| Expected volatility | |
| 257.14% - 1437.78% | |
| Expected term | |
| .22 – 4.46 years | |
| Risk free interest | |
| .52% - .2.45% | |
NOTE
12 – WARRANTS
The
following table summarizes information with respect to the outstanding warrants to purchase common stock of the Company, all of which
were exercisable as of March 31, 2022:
| Exercise Price | | |
Number Outstanding | | |
Expiration Date |
| $ | 0.0300 | | |
| 51,906 | | |
June 19, 2022 |
| $ | 0.0200 | | |
| 5,400,000 | | |
June 18, 2025 |
| $ | 0.0260 | | |
| 1,153,846 | | |
July 23, 2025 |
| $ | 0.0200 | | |
| 5,650,000 | | |
August 19, 2025 |
| $ | 0.0200 | | |
| 5,650,000 | | |
August 19, 2025 |
| $ | 0.0020 | | |
| 25,000,000 | | |
January 5, 2026 |
| $ | 0.0020 | | |
| 25,000,000 | | |
January 5, 2026 |
| $ | 0.0020 | | |
| 37,500,000 | | |
July 15, 2026 |
| $ | 0.0020 | | |
| 37,500,000 | | |
July 15, 2026 |
| $ | 0.0020 | | |
| 50,000,000 | | |
September 14, 2026 |
| $ | 0.0020 | | |
| 50,000,000 | | |
September 14, 2026 |
| | | | |
| 242,905,752 | | |
|
A
summary of warrant activity for the three months ended March 31, 2022 is as follows:
| | |
| | |
| | |
Weighted-Average | | |
| |
| | |
| | |
Weighted-Average | | |
Remaining | | |
Aggregate | |
| Warrants | |
Shares | | |
Exercise Price | | |
Contractual Term | | |
Intrinsic Value | |
| Outstanding at December 31, 2021 | |
| 242,905,752 | | |
$ | 0.0034 | | |
| 4.43 | | |
$ | — | |
| Granted | |
| 0 | | |
| — | | |
| | | |
| | |
| Exercised | |
| 0 | | |
| — | | |
| | | |
| | |
| Forfeited or expired | |
| 0 | | |
| — | | |
| | | |
| | |
| Outstanding at March 31, 2022 | |
| 242,905,752 | | |
$ | 0.0034 | | |
| 4.18 | | |
$ | — | |
| Exercisable at March 31, 2022 | |
| 242,905,752 | | |
| 0.0034 | | |
| 4.18 | | |
$ | — | |
The
aggregate intrinsic value in the preceding tables represents the total pre-tax intrinsic value, based on options with an exercise price
that is higher than the Company’s market stock price of $0.0001 on March 31, 2022.
NOTE
13 – RELATED PARTY TRANSACTIONS
Consulting
Agreements
On
June 19, 2019, the Company entered into a Consulting Agreement with Mr. Samuel Berry. The agreement is for a term of one year and
is renewable upon mutual consent. Mr. Berry will receive an annual salary of $50,000, payable in quarterly installments at $12,500 per
quarter. As of December 31, 2021, Mr. Berry had an unpaid balance of $118,167. During
the three months ended March 31, 2022, the Company accrued $12,500 in fees and made $15,000 in payments in connection to his agreement.
As of March 31, 2022, the Company owed Mr. Berry $115,667 in fees.
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.
On
November 1, 2021, the parties agreed to terminate the agreement dated January 1, 2021 and entered into a new Consulting Agreement. 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 agreed to pay the Consultant a monthly fee of $3,000 and $100,000 in Convertible Preferred Series A stock.
Director
Agreements
On
January 1, 2022, the Company entered into a Directors Agreement with Jef Lewis for a term of one year. In exchange for serving in this
capacity, the Company will issue 5,000 shares of Convertible Preferred Series A stock at a price of $10 per share. The shares are restricted
and cannot be sold or otherwise transferred by the undersigned except as provided by law, and in no event, prior to the maturity date
of six (6) months.
On
January 1, 2022, the Company entered into a Directors Agreement with Sam Berry for a term of one year. In exchange for serving in this
capacity, the Company will issue 5,000 shares of Convertible Preferred Series A stock at a price of $10 per share. The shares are restricted
and cannot be sold or otherwise transferred by the undersigned except as provided by law, and in no event, prior to the maturity date
of six (6) months.
On
January 1, 2022, the Company entered into a Directors Agreement with Bennett Buchanan for a term of one year. In exchange for serving
in this capacity, the Company will issue 5,000 shares of Convertible Preferred Series A stock at a price of $10 per share. The shares
are restricted and cannot be sold or otherwise transferred by the undersigned except as provided by law, and in no event, prior to the
maturity date of six (6) months.
NOTE
14 – LONG TERM DEBT
As
of March 31, 2022 and December 31, 2021, long term debt was comprised of the following:
Schedule
of Long Term Debt
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Long term debt | |
| | | |
| | |
| Equipment loan | |
| 41,134 | | |
| 41,134 | |
| Line of credit | |
| 113,065 | | |
| 111,256 | |
| Total long term debt | |
$ | 154,199 | | |
$ | 152,390 | |
Equipment
Loan
In
August 2021, the Company returned $96,357 in equipment to the lender to settle debt of $74,480, and a loss on disposal of assets of $16,267
was recorded to the statement of operations.
NOTE
15 – CONVERTIBLE PREFERRED STOCK
Series
A Convertible Preferred Stock
On
July 1, 2019, the Company filed a Certificate of Amendment to increase the number of authorized Series A Convertible Preferred Stock
to 30,000,000, with a par value of $0.001. Each share of Convertible Preferred Series A Stock shall have a value of $10 per
share and will convert into common stock at the closing price of the common stock on the date of conversion. The Series A
stock shall have no voting rights on corporate matters, unless and until the Series A shares are converted into Common Shares, at which
time they will have the same voting rights as all Common Shareholders have; their consent shall not be required for taking any corporate
action.
Pursuant
to the Merger Agreement dated November 22, 2019, the Company issued $5,000,000 worth of Convertible Preferred Series A Stock to Mr. Lewis.
The number of Convertible Preferred Series A shares to be issued is 500,000 shares at a price of $10 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 Convertible Preferred Series A Shares were issued pursuant
to the Merger Agreement.
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 Convertible Preferred Series A shares at a price of $10 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 Convertible Preferred Series A shares at a price of $10 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 Convertible 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 Convertible 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 Convertible Preferred stock at $10 per share to Bennett Buchanan, pursuant
to his Consulting Agreement dated January 1, 2021.
On
April 13, 2021, the Company issued 10,000 shares of Series A Convertible Preferred stock to key employee Corbin Boyle at $10 per share.
On
April 13, 2021, the Company issued 10,000 shares of Series A Convertible Preferred stock to key employee Jesse Prim at $10 per share.
On
May 14, 2021, the Company issued 14,497 shares of Series A Convertible Preferred stock at $10 per share, to settle liabilities of $144,970.
On
September 15, 2021, the Company repurchased 10,000 shares of Series A Convertible Preferred stock at $10 per share from Bennett Buchanan,
pursuant to his Director Agreement. The shares were purchased for $100,000, which is payable in five installments of $20,000 each over
the six-month period following his appointment as a director.
On
December 1, 2021, the Company issued 10,000 shares of Series A Convertible Preferred stock at $10 per share to Bennett Buchanan, pursuant
to his Consulting Agreement dated November 1, 2021.
On
December 8, 2021, the Company issued 500,000 shares of Series A Convertible Preferred stock at $10 per share to Jef Lewis, pursuant to
his Employment Agreement dated October 1, 2021.
On
December 27, 2021, the Company issued 100,000 of Preferred Series A shares to Mr. Berry for his four years of service as a Director for
the company.
During
the year ended December 31, 2021, 434,780 shares of Convertible Series A Preferred stock were converted to 2,675,120,601 common shares
in accordance with the conversion terms. The issuances resulted in a loss on conversion of $2,657,807, which was recorded to the statement
of operations.
On
March 2, 2022, the Company issued 5,000 shares of Series A Convertible Preferred stock to key employee Andrew Salo at $10 per share.
On
March 4, 2022, the Company issued 2,500 shares of Series A Convertible Preferred stock for advertising services provided by Jef Freeman
at $10 per share.
During
the three months ended March 31, 2022, 23,720 shares of Convertible Series A Preferred stock were converted to 908,980,057 common shares
in accordance with the conversion terms. The issuances resulted in a loss on conversion of $121,557, which was recorded to the statement
of operations.
The
Series A Convertible Preferred Stock has been classified outside of permanent equity and liabilities since it embodies a conditional
obligation that the Company may settle by issuing a variable number of equity shares and the monetary value of the obligation is based
on a fixed monetary amount known at inception. Each share of the Convertible Series A Preferred Stock has a fixed value of $10 per share,
has no voting rights, and is convertible into common stock at closing market price on the date of conversion. The Company has recorded
$13,634,970, which represents 1,363,497 Series A Convertible Preferred Stock at $10 per share, issued and outstanding as of March 31,
2022, outside of permanent equity and liabilities.
Preferred
Stock Payable
On
August 20, 2021, the company agreed to issue 50,000 Convertible Preferred Series A shares at $10 per share to South Pacific Traders Oy
pursuant to an exclusive distribution agreement. The shares were issued on January 17, 2022 and $5,000,000 was reclassified to Series
A Convertible Preferred Stock.
On
January 1, 2022, the company agreed to issue 5,000 Convertible Series A shares at $10 per share to Jef Lewis, Sam Berry, and Bennett
Buchanan, pursuant to Directors Agreements.
NOTE
16 – PREFERRED STOCK
On
March 28, 2017, the Company filed an amendment to its articles of incorporation designating 20,000 shares of its authorized preferred
stock, par value $0.001 as Series B Voting Preferred Stock. The Series B Voting Preferred Stock shall have the right to vote
the shares on any matter requiring shareholder approval on the basis of 4 times the votes of all the issued and outstanding shares of
common stock, as well as any issued and outstanding preferred stock.
On
November 22, 2019, President Jef Lewis was issued 1,000 Preferred Series B Control Shares, pursuant to his employee agreement dated November
22, 2019.
As
of March 31, 2022, 1,000 Series B Preferred shares were authorized, of which 1,000 Series B shares were issued and outstanding.
NOTE
17 – 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 Convertible 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 Convertible 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.
On
June 10, 2021, the Company filed a Certificate of Amendment to increase the number of authorized common shares from 20,000,000,000 to
25,000,000,000 with a par value of $0.001.
During
the year ended December 31, 2021, warrant holders exercised the warrants and the Company issued 386,006,850 shares of common stock through
a cashless exercise of the warrants in accordance with the conversion terms.
During
the year ended December 31, 2021, 434,780 shares of Convertible Series A Preferred stock were converted to 2,675,120,601 common shares
in accordance with the conversion terms. The issuances resulted in a loss on conversion of $2,657,807, which was recorded to the statement
of operations.
During
the year ended December 31, 2021, the holders of a convertible notes converted $984,042 of principal, $78,686 of accrued interest and
$7,750 in conversion fees into 1,316,251,353 shares of common stock. The common stock was valued at $3,768,693 based on the market price
of the Company’s stock on the date of conversion.
During
the year ended December 31, 2021, the holder 1,316,251,353 of a promissory notes converted $108,000 of principal, $12,960 of
accrued interest, $15,000 in penalties, and $750 in conversion fees into 198,130,434 shares of common stock. The common stock was
valued at $594,391 based on the market price of the Company’s stock on the date of conversion.
During
the three months ended March 31, 2022, 23,720 shares of Convertible Series A Preferred stock were converted to 908,980,057 common shares
in accordance with the conversion terms. The issuances resulted in a loss on conversion of $121,557, which was recorded to the statement
of operations.
During
the three months ended March 31, 2022, the holders of a convertible notes converted $339,126 of principal and $27,602 of accrued interest
into 3,784,719,901 shares of common stock. The common stock was valued at $1,342,016 based on the market price of the Company’s
stock on the date of conversion.
As
of March 31, 2022, 25,000,000,000 were authorized, of which 12,803,231,651 shares are issued and outstanding.
NOTE
18 – 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, 2022:
Schedule
of Deferred Tax Assets and Valuation Allowance
As
of the date of this filing, the Company is not current in filing their tax returns. The last return filed by the Company was December
31, 2019, and the Company has not accrued any potential penalties or interest from that period forward. The Company will need to
file returns for the year ending December 31, 2021 and 2020, which is still open for examination.
NOTE
19 – COMMITMENTS AND CONTINGENCIES
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
20 – SUBSEQUENT EVENTS
On
April 28, 2022, the Company approved the authorization of a 1 for 300 reverse stock split of the Company’s outstanding shares of
common stock. In addition, the Company reduced the number of authorized shares from 25,000,000,000 to 83,333,333 shares with a par value
of $0.001.
Notes
Payable
On
April 29, 2022, the Company entered into a Promissory Note in the amount of $53,750. The note is unsecured, bears interest at 10% per
annum, and matures on April 29, 2023.
The
Company has evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no additional subsequent events to
disclose.