U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
Mark
One
x
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the quarterly period ended March 31, 2020
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ______ to _______
Commission
file number 000-55787
BrewBilt
Manufacturing Inc. |
(Exact
name of registrant as specified in its charter) |

Florida |
|
|
|
47-0990750 |
(State
or other
jurisdiction of incorporation) |
|
|
|
(I.R.S.
Employer
Identification No.) |
110
Spring Hill Road #10
Grass Valley, CA 95945
(Address of principal executive offices)
(530) 802-5023
(Registrant’s telephone number,
including area code)
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
x No
o
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required
to submit and post such files
Yes
x No o
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer o |
Accelerated
filer o |
Non-accelerated
filer o (Do not
check if a smaller reporting company) |
Smaller
reporting company x |
|
Emerging
growth company x |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 7(a)(2)(B) of the Securities Act. o
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes
o No
x
As of
June 10, 2020, there were 244,439,824 shares of the registrant’s
$0.001 par value common stock issued and outstanding.
CONTENTS
FORWARD
LOOKING STATEMENTS
Statements
made in this Form 10-Q that are not historical or current facts are
“forward-looking statements.”. These statements often can be
identified by the use of terms such as “may,” “will,” “expect,”
“believe,” “anticipate,” “estimate,” “approximate” or “continue,”
or the negative thereof. We intend that such forward-looking
statements be subject to the safe harbors for such statements. We
wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made.
Any forward-looking statements represent management’s best judgment
as to what may occur in the future. However, forward-looking
statements are subject to risks, uncertainties and important
factors beyond our control that could cause actual results and
events to differ materially from historical results of operations
and events and those presently anticipated or projected. We
disclaim any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of
such statement or to reflect the occurrence of anticipated or
unanticipated events.
PART I - FINANCIAL
INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
The
accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form
10-Q and Article 210 8-03 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. All such adjustments
are of a normal recurring nature. Operating results for the three
months ended March 31, 2020, are not necessarily indicative of the
results that may be expected for the year ending December 31,
2020. For further information, refer to the financial
statements and footnotes thereto included in our company’s Annual
Report on Form 10-K for the year ended December 31, 2019 as filed
with the Securities and Exchange Commission on April 14,
2020.
REPORTED
IN UNITED STATES DOLLARS
BREWBILT
MANUFACTURING INC. |
CONDENSED CONSOLIDATED BALANCE
SHEETS |
|
|
March 31, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
|
|
(unaudited) |
|
|
(audited) |
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
620 |
|
|
$ |
1,444 |
|
Accounts receivable |
|
|
473,453 |
|
|
|
323,779 |
|
Earnings in excess of billings |
|
|
143,288 |
|
|
|
53,038 |
|
Inventory |
|
|
47,280 |
|
|
|
47,280 |
|
Prepaid expenses |
|
|
369 |
|
|
|
9,467 |
|
Other current assets |
|
|
221 |
|
|
|
156 |
|
Total current assets |
|
|
665,231 |
|
|
|
435,164 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
103,799 |
|
|
|
116,202 |
|
Right-of-use asset |
|
|
384,662 |
|
|
|
392,664 |
|
Deposits |
|
|
16,980 |
|
|
|
4,980 |
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
1,170,672 |
|
|
$ |
949,010 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
934,145 |
|
|
$ |
947,655 |
|
Accrued interest |
|
|
284,503 |
|
|
|
250,592 |
|
Accrued liabilities |
|
|
114,260 |
|
|
|
62,539 |
|
Billings in excess of revenue |
|
|
1,827,443 |
|
|
|
1,511,096 |
|
Convertible notes payable, net of discount |
|
|
851,182 |
|
|
|
829,384 |
|
Derivative liabilities |
|
|
3,902,073 |
|
|
|
2,273,269 |
|
Liability for unissued shares |
|
|
175,825 |
|
|
|
151,325 |
|
Related party liabilities |
|
|
121,737 |
|
|
|
84,072 |
|
Total current liabilities |
|
|
8,211,168 |
|
|
|
6,109,932 |
|
|
|
|
|
|
|
|
|
|
Long
term debt |
|
|
274,177 |
|
|
|
307,887 |
|
Operating lease liabilities |
|
|
384,662 |
|
|
|
392,664 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
8,870,007 |
|
|
|
6,810,483 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
Preferred stock, Series A: $0.001 par value; 30,000,000 shares
authorized |
|
|
900 |
|
|
|
400 |
|
900,000 shares issued and outstanding at March 31, 2020 |
|
|
|
|
|
|
|
|
400,000 shares issued and outstanding at December 31,
2019 |
|
|
|
|
|
|
|
|
Preferred stock, Series B: $0.001 par value; 1,000 shares
authorized |
|
|
1 |
|
|
|
1 |
|
1,000
shares issued and outstanding at March 31, 2020 |
|
|
|
|
|
|
|
|
1,000
shares issued and outstanding at December 31, 2019 |
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 10,000,000,000 authorized |
|
|
34,596 |
|
|
|
10,343 |
|
34,595,672
shares issued and outstanding at March 31, 2020 |
|
|
|
|
|
|
|
|
10,343,330
shares issued and outstanding at December 31, 2019 |
|
|
|
|
|
|
|
|
Additional paid in capital |
|
|
(14,967,000 |
) |
|
|
(15,240,774 |
) |
Accumulated earnings (deficit) |
|
|
7,232,168 |
|
|
|
9,368,557 |
|
Total shareholders’ equity (deficit) |
|
|
(7,699,335 |
) |
|
|
(5,861,473 |
) |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
|
$ |
1,170,672 |
|
|
$ |
949,010 |
|
The
accompanying notes are an integral part of these financial
statements
BREWBILT
MANUFACTURING INC. |
CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS |
(Unaudited) |
|
|
Three months ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2020 |
|
|
2019 |
|
Sales |
|
$ |
38,934 |
|
|
$ |
332,068 |
|
Cost of sales |
|
|
21,623 |
|
|
|
306,970 |
|
Gross profit |
|
|
17,311 |
|
|
|
25,098 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Consulting fees |
|
|
24,750 |
|
|
|
15,000 |
|
G&A expenses |
|
|
82,712 |
|
|
|
132,011 |
|
Professional fees |
|
|
47,370 |
|
|
|
— |
|
Salaries and wages |
|
|
147,660 |
|
|
|
140,984 |
|
Total operating expenses |
|
|
302,492 |
|
|
|
287,995 |
|
|
|
|
|
|
|
|
|
|
Loss
from operations |
|
|
(285,181 |
) |
|
|
(262,897 |
) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Loss
on derivative liability valuation |
|
|
(1,710,732 |
) |
|
|
— |
|
Interest expense |
|
|
(140,476 |
) |
|
|
— |
|
Total other expenses |
|
|
(1,851,208 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Net
loss before income taxes |
|
|
(2,136,389 |
) |
|
|
(262,897 |
) |
Income tax expense |
|
|
— |
|
|
|
— |
|
Net loss |
|
$ |
(2,136,389 |
) |
|
$ |
(262,897 |
) |
|
|
|
|
|
|
|
|
|
Per share
information |
|
|
|
|
|
|
|
|
Weighted number of common shares outstanding, basic and
diluted |
|
|
34,595,672 |
|
|
|
— |
|
Net loss per common share |
|
$ |
(0.06175 |
) |
|
$ |
— |
|
The
accompanying notes are an integral part of these financial
statements
BREWBILT
MANUFACTURING INC. |
CONDENSED CONSOLIDATED STATEMENT OF
SHAREHOLDERS’ EQUITY (DEFICIT) |
For
the three months ended March 31, 2020 and 2019 |
(Unaudited) |
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|
|
Series A |
|
|
Series B |
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Shareholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
Balance as of December 31, 2019 |
|
|
400,000 |
|
|
$ |
400 |
|
|
|
1,000 |
|
|
$ |
1 |
|
|
|
10,343,330 |
|
|
$ |
10,343 |
|
|
$ |
(15,240,774 |
) |
|
$ |
9,368,557 |
|
|
$ |
(5,861,473 |
) |
Conversion of promissory notes to stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
32,260,676 |
|
|
|
32,261 |
|
|
|
366,617 |
|
|
|
— |
|
|
|
398,878 |
|
Derivative settlements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(50,586 |
) |
|
|
— |
|
|
|
(50,586 |
) |
Cancellation of shares issued for services |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,008,334 |
) |
|
|
(8,008 |
) |
|
|
(42,257 |
) |
|
|
— |
|
|
|
(50,265 |
) |
Preferred
shares issued per agreement |
|
|
500,000 |
|
|
|
500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
500 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,136,389 |
) |
|
|
(2,136,389 |
) |
Balance as of March 31, 2020 |
|
|
900,000 |
|
|
$ |
900 |
|
|
|
1,000 |
|
|
$ |
1 |
|
|
|
34,595,672 |
|
|
$ |
34,596 |
|
|
$ |
(14,967,000 |
) |
|
$ |
7,232,168 |
|
|
$ |
(7,699,335 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
(303,375 |
) |
|
$ |
(722,748 |
) |
|
$ |
(1,026,123 |
) |
Capital distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22,296 |
) |
|
|
— |
|
|
|
(22,296 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(262,897 |
) |
|
|
(262,897 |
) |
Balance as of March 31, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
(325,671 |
) |
|
$ |
(985,645 |
) |
|
$ |
(1,311,316 |
) |
The
accompanying notes are an integral part of these financial
statements
BREWBILT
MANUFACTURING INC. |
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS |
(Unaudited) |
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2020 |
|
|
2019 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,136,389 |
) |
|
$ |
(262,897 |
) |
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Amortization of convertible debt discount |
|
|
58,224 |
|
|
|
— |
|
Change in derivative liability |
|
|
1,710,732 |
|
|
|
— |
|
Common stock issued for services |
|
|
(25,000 |
) |
|
|
— |
|
Liability for unissued shares due to agreements |
|
|
25,000 |
|
|
|
— |
|
Decrease (increase) in operating assets |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(149,674 |
) |
|
|
52,075 |
|
Deposits |
|
|
(12,000 |
) |
|
|
— |
|
Earnings in excess of billings |
|
|
(90,250 |
) |
|
|
(34,751 |
) |
Prepaid expenses |
|
|
9,098 |
|
|
|
(3,245 |
) |
Other assets |
|
|
(65 |
) |
|
|
275 |
|
Increase (decrease) in operating liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(38,775 |
) |
|
|
77,897 |
|
Accrued interest |
|
|
78,849 |
|
|
|
2,358 |
|
Accrued liabilities |
|
|
51,721 |
|
|
|
3,867 |
|
Earnings in excess of revenues |
|
|
316,347 |
|
|
|
324,301 |
|
Long term debt |
|
|
(33,710 |
) |
|
|
(111,465 |
) |
Net cash (used in) provided by operating activities |
|
|
(235,892 |
) |
|
|
48,414 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Property, plant and equipment, reductions |
|
|
12,403 |
|
|
|
14,488 |
|
Net cash (used in) provided by investing activities |
|
|
12,403 |
|
|
|
14,488 |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Contributed capital |
|
|
— |
|
|
|
(22,296 |
) |
Proceeds from convertible debt |
|
|
185,000 |
|
|
|
— |
|
Related party liabilities |
|
|
37,665 |
|
|
|
— |
|
Net cash (used in) provided for financing activities |
|
|
222,665 |
|
|
|
(22,296 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
(824 |
) |
|
|
40,606 |
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
|
|
1,444 |
|
|
|
43,285 |
|
Cash, end of period |
|
$ |
620 |
|
|
$ |
83,891 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash
paid for income taxes |
|
$ |
— |
|
|
$ |
— |
|
Cash
paid for interest |
|
$ |
— |
|
|
$ |
— |
|
The
accompanying notes are an integral part of these financial
statements
BREWBILT
MANUFACTURING INC.
NOTES TO UNAUDITED FINANCIAL
STATEMENTS
March
31, 2020
(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.
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 very
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.
The
former company, Vet Online Supply Inc, a Florida corporation, was
incorporated on May 31, 2014. Vet Online Supply Inc. manufactured
and distributed wholistic CBD based pet products. On November 22,
2019, Vet Online Supply and Brewbilt Manufacturing (“BrewBilt”)
entered into an Agreement and Plan of Merger (the “Merger
Agreement”) and completed a merger, whereby Brewbilt merged with
and into Vet Online Supply, with BrewBilt remaining as the
surviving entity (the “Merger”). Under U.S. generally accepted
accounting principles, the merger is treated as a “reverse merger”
under the purchase method of accounting, with BrewBilt as the
accounting acquirer.
On
January 21, 2020, the Company filed Articles of Amendment to change
its name to “BrewBilt Manufacturing Inc.
The
Company’s common stock will continue to trade on the OTCQB Market
under the new Symbol “BBRW,” and the CUSIP number for the Company’s
common stock is now 10756L108. Outstanding stock certificates for
shares of the Company are not affected by the name change, and they
continue to be valid and need not be exchanged.
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.
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, 2020
and December 31, 2019, the Company has deferred $1,827,443 and
$1,511,096, respectively, in revenue, and $143,288 and $53,038 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, 2020 and December 31, 2019 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.
In
addition, the Company is a manufacturer of premium CBD infused
holistic pet products and as such will maintain inventory on site.
The company directly drop ships to customers when ordered. The
Company has wholesale distributors that purchase products in bulk
inventory.
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. At December 31, 2019, the
Company reviewed the goodwill recorded in the Merger and determined
that an impairment expense of $2,289,884 was required.
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, 2020 and December 31, 2019, 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, 2020 |
|
|
December 31, 2019 |
|
|
|
Level |
|
Fair Value |
|
|
Fair Value |
|
Derivative Liability |
|
3 |
|
$ |
3,902,073 |
|
|
$ |
2,273,269 |
|
Total
Financial Liabilities |
|
|
|
$ |
3,902,073 |
|
|
$ |
2,273,269 |
|
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 March 31, 2020 and
December 31, 2019, 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 current in filing their tax
returns. The last return filed by the Company was December 31,
2018, and the Company has not accrued any potential penalties or
interest from that period forward.
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
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from
Contracts with Customers (Topic 606), which replaces existing
revenue recognition guidance. The updated guidance requires
companies to recognize revenue in a way that depicts the transfer
of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. In addition, the
new standard requires that reporting companies disclose the nature,
amount, timing and uncertainty of revenue and cash flows arising
from contracts with customers. The Company adopted the standard on
January 1, 2018, using a modified retrospective approach, with the
cumulative effect of initially applying the standard recognized in
retained earnings at the date of adoption.
In
February 2016, the FASB issued ASU 2016-02 (ASC Topic 842),
Leases. The ASU amends a number of aspects of lease
accounting, including requiring lessees to recognize operating
leases with a term greater than one year on their balance sheet as
a right-of-use asset and corresponding lease liability, measured at
the present value of the lease payments. The amendments in this ASU
are effective for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years. Early
adoption is permitted. The Company adopted the new lease guidance
effective January 1, 2019.
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments –
Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. The guidance requires companies to measure
credit losses utilizing a methodology that reflects expected credit
losses and requires the consideration of a broader range of
reasonable and supportable information to inform credit loss
estimates. ASU 2016-13 is effective for fiscal years beginning
after December 15, 2019, including interim periods within
those fiscal years. The Company adopted the standard in the first
quarter of fiscal 2020 and there was no material impact.
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 2020.
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 – MERGER TRANSACTION
On
November 22, 2019, Vet Online Supply and Brewbilt Manufacturing
(“BrewBilt”) entered into an Agreement and Plan of Merger (the
“Merger Agreement”) and completed a merger, whereby Brewbilt merged
with and into Vet Online Supply, with BrewBilt remaining as the
surviving entity (the “Merger”). Under U.S. generally accepted
accounting principles, the merger is treated as a “reverse merger”
under the purchase method of accounting, with BrewBilt as the
accounting acquirer.
Pursuant with the Merger Asset Purchase Agreement, the Board of
Directors has authorized that BrewBilt shall sell, assign and
transfer all of its right, title and interest to its IP, fixed
assets and “know how” to the Company (collectively, the “Seller’s
Assets”). Vet Online Supply and BrewBilt mutually agree that
BrewBilt will assign certain assets and provide the “Know-How”
regarding the designing and building of the finest craft brewing
equipment in the industry today. As consideration for the IP, fixed
assets and the “Know -How”, the Company shall issue, or cause to be
issued, $5,000,000 worth of Preferred Series A Stock (PAR $.001)
within thirty (30) days from the date of the agreement. 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 VTNL. BrewBilt
has designated that the said stock be issued in the name of its
President, Jeffrey Lewis.
The
Board of Directors dismissed Daniel Rushford as an officer and
director, specifically as the Chief Executive Officer, Chairman of
the Board, and Corporate (President) of the Company effective
November 22, 2019. Effective November 22, 2019, Daniel Rushford
will have a new revised Employment Agreement which appoints him as
Manager of the CBD Pet Supply Division, a non-director/officer
position which includes returning to Treasury 1,000 Preferred
Series B Control Shares, and an annual salary of $36,000. 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.
NOTE
4 – 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, 2020, the Company accrued prepaid insurance expenses of
$369 and as of December 31, 2019, the Company accrued prepaid
insurance expenses and employee wages of $9,467.
NOTE
5 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following at March 31, 2020 and
December 31, 2019:
|
|
March 31, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
Computer Equipment |
|
$ |
18,313 |
|
|
$ |
18,313 |
|
Leasehold Improvements |
|
|
48,549 |
|
|
|
48,549 |
|
Machinery |
|
|
250,762 |
|
|
|
250,762 |
|
Vehicles |
|
|
6,717 |
|
|
|
6,717 |
|
Total |
|
|
324,341 |
|
|
|
324,341 |
|
Less accumulated
depreciation |
|
|
(220,542 |
) |
|
|
(208,139 |
) |
|
|
|
|
|
|
|
|
|
Net |
|
$ |
103,799 |
|
|
$ |
116,202 |
|
NOTE
6 – 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
adoption of the new guidance resulted in the recognition of ROU
assets of $423,360 and lease liabilities
of $423,360.
The
interest rate implicit in lease contracts is typically not readily
determinable. As such, the Company utilizes its incremental
borrowing rate, which is the rate incurred to borrow on a
collateralized basis over a similar term an amount equal to the
lease payments in a similar economic environment. In calculating
the present value of the lease payments, the Company elected to
utilize its incremental borrowing rate based on the remaining lease
terms as of the January 1, 2019 adoption date.
Operating
lease ROU assets and operating lease liabilities are recognized
based on the present value of the future minimum lease payments
over the lease term at the commencement date. The operating lease
ROU asset also includes any lease payments made and excludes lease
incentives and initial direct costs incurred, if any. Our lease
terms may include options to extend or terminate the lease when it
is reasonably certain that we will exercise that option. Our lease
has a remaining lease term of nine years.
The
Company has elected the practical expedient to combine
lease and non-lease components as a single component. The lease
expense is recognized over the expected term on a straight-line
basis. Operating leases are recognized on the balance sheet as
right-of-use assets, current operating lease liabilities and
non-current operating lease liabilities.
The
new standard also provides practical expedients and certain
exemptions for an entity’s ongoing accounting. We have elected the
short-term lease recognition exemption for all leases that qualify.
This means, for those leases where the initial lease term is one
year or less or for which the ROU asset at inception is deemed
immaterial, we will not recognize ROU assets or lease liabilities.
Those leases are expensed on a straight-line basis over the term of
the lease.
Operating
Leases
On
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.
ROU
assets and lease liabilities related to our operating lease is as
follows:
|
|
March 31, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
Right-of-use
assets |
|
$ |
384,662 |
|
|
$ |
392,664 |
|
Current lease liabilities |
|
|
— |
|
|
|
— |
|
Non-current lease liabilities |
|
$ |
384,662 |
|
|
$ |
392,664 |
|
NOTE
7 – ACCURED LIABILITIES
As of
March 31, 2020 and December 31, 2019, accrued liabilities were
comprised of the following:
|
|
March 31, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
Accrued liabilities |
|
|
|
|
|
|
|
|
Accrued wages |
|
$ |
51,048 |
|
|
$ |
5,784 |
|
Credit card |
|
|
17,364 |
|
|
|
16,659 |
|
Payroll
liabilities |
|
|
(103 |
) |
|
|
(644 |
) |
Reimbursable
expenses |
|
|
5,212 |
|
|
|
— |
|
Sales tax
payable |
|
|
35,739 |
|
|
|
35,740 |
|
Warranty |
|
|
5,000 |
|
|
|
5,000 |
|
Total accrued expenses |
|
$ |
114,260 |
|
|
$ |
62,539 |
|
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 products that are
incomplete.
Changes
in unearned revenue for the periods ended March 31, 2020 and
December 31, 2019 were as follows:
|
|
March 31, |
|
|
December 31, |
|
|
|
2019 |
|
|
2019 |
|
Unearned revenue,
beginning of the period |
|
$ |
1,511,096 |
|
|
$ |
1,905,346 |
|
Billings in
excess of revenue during the period |
|
|
347,770 |
|
|
|
536,420 |
|
Recognition of unearned revenue in prior periods |
|
|
(31,423 |
) |
|
|
(930,670 |
) |
Unearned revenue, end of the
period |
|
$ |
1,827,443 |
|
|
$ |
1,511,096 |
|
As of
March 31, 2020 and December 31, 2019, the Company has recorded
$143,288 and $53,038, 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, 2020 and December 31, 2019, notes payable were comprised
of the following:
|
|
Original |
|
Original |
|
Due |
|
Interest |
|
Conversion |
|
March 31, |
|
|
December 31, |
|
|
|
Note Amount |
|
Note Date |
|
Date |
|
Rate |
|
Rate |
|
2020 |
|
|
2019 |
|
APG Capital #2 |
|
31,500 |
|
6/25/2018 |
|
6/25/2019 |
|
12% |
|
Variable |
|
|
23,055 |
|
|
|
31,500 |
|
Auctus Fund #2 |
|
84,000 |
|
1/10/2018 |
|
10/10/2018 |
|
24% |
|
Variable |
|
|
31,285 |
|
|
|
31,285 |
|
Auctus Fund #3 |
|
175,000 |
|
2/6/2018 |
|
11/6/2018 |
|
24% |
|
Variable |
|
|
175,000 |
|
|
|
175,000 |
|
Auctus Fund #4 |
|
90,000 |
|
3/6/2018 |
|
12/6/2018 |
|
24% |
|
Variable |
|
|
90,000 |
|
|
|
90,000 |
|
Auctus Fund #5 |
|
100,000 |
|
6/14/2018 |
|
3/14/2019 |
|
24% |
|
Variable |
|
|
100,000 |
|
|
|
100,000 |
|
Auctus Fund #6 |
|
75,000 |
|
8/13/2018 |
|
5/13/2019 |
|
12% |
|
Variable |
|
|
75,000 |
|
|
|
75,000 |
|
Auctus Fund #7 |
|
25,000 |
|
10/11/2018 |
|
7/11/2019 |
|
12% |
|
Variable |
|
|
25,000 |
|
|
|
25,000 |
|
Auctus Fund #8 |
|
25,750 |
|
12/20/2018 |
|
9/20/2019 |
|
12% |
|
Variable |
|
|
25,750 |
|
|
|
25,750 |
|
Auctus Fund #9 |
|
57,000 |
|
4/12/2019 |
|
1/12/2020 |
|
12% |
|
Variable |
|
|
57,000 |
|
|
|
57,000 |
|
Auctus Fund #10 |
|
31,000 |
|
7/22/2020 |
|
7/22/2020 |
|
12% |
|
Variable |
|
|
31,000 |
|
|
|
31,000 |
|
EMA Financial #2 |
|
50,000 |
|
12/15/2017 |
|
12/15/2018 |
|
12% |
|
Variable |
|
|
— |
|
|
|
8,474 |
|
EMA Financial #3 |
|
100,000 |
|
3/5/2018 |
|
3/5/2019 |
|
24% |
|
Variable |
|
|
53,798 |
|
|
|
73,305 |
|
EMA Financial #4 |
|
25,000 |
|
10/10/2018 |
|
7/10/2019 |
|
24% |
|
Variable |
|
|
25,000 |
|
|
|
25,000 |
|
EMA Financial #5 |
|
80,500 |
|
1/30/2020 |
|
10/31/2020 |
|
10% |
|
Variable |
|
|
80,500 |
|
|
|
— |
|
Emerging Corp Cap #1 |
|
83,333 |
|
2/12/2018 |
|
2/11/2019 |
|
22% |
|
Variable |
|
|
74,933 |
|
|
|
74,933 |
|
Emerging Corp Cap #2 |
|
110,000 |
|
10/31/2018 |
|
10/31/2019 |
|
12% |
|
Variable |
|
|
110,000 |
|
|
|
110,000 |
|
Power Up Lending #9 |
|
68,000 |
|
1/2/2020 |
|
1/2/2021 |
|
10% |
|
Variable |
|
|
68,000 |
|
|
|
— |
|
Power Up Lending
#10 |
|
53,000 |
|
2/13/2020 |
|
2/13/2021 |
|
10% |
|
Variable |
|
|
53,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,098,321 |
|
|
|
933,247 |
|
Debt
discount |
|
|
|
|
(232,239 |
) |
|
|
(100,137 |
) |
Financing costs/Original issue discount |
|
|
|
|
|
(14,900 |
) |
|
|
(3,726 |
) |
Notes payable, net of discount |
|
|
|
$ |
851,182 |
|
|
$ |
829,384 |
|
During
the three months ending March 31, 2020, the Company received
proceeds from new convertible notes of $185,000. The Company
recorded no payments on their convertible notes, default penalties
of $9,920, and conversions of $46,346 of convertible note
principal. The Company recorded loan fees on new convertible notes
of $16,500, which increased the debt discounts recorded on the
convertible notes during the three months ending March 31, 2020.
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 $58,224 on their convertible
note debt discounts and loan fees. As of March 31, 2020, the
convertible notes payable are convertible into 1,509,982,157
shares of the Company’s common stock.
During
the three months ended March 31, 2020, the Company recorded
interest expense of $57,313 on its convertible notes payable.
During the three months ended March 31, 2020, the Company recorded
conversions of $26,642 of convertible note interest and $8,375 in
conversion fees. As of March 31, 2020, the accrued interest balance
was $271,380.
As of
March 31, 2020, we have not attained profitable operations and are
dependent upon obtaining financing to pursue any extensive
acquisitions and activities.
NOTE
10 – DERIVATIVE LIABIITIES
The
following table represents the Company’s derivative liability
activity for the embedded conversion features for the period ending
March 31, 2020 and December 31, 2019:
|
|
March 31, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
Balance, beginning of period |
|
$ |
2,273,269 |
|
|
$ |
15,347,154 |
|
Initial recognition of derivative
liability |
|
|
672,749 |
|
|
|
— |
|
Conversion of derivative instruments
to Common Stock |
|
|
(266,927 |
) |
|
|
(5,077 |
) |
Mark-to-Market
adjustment to fair value |
|
|
1,222,982 |
|
|
|
(13,068,808 |
) |
Balance, end of period |
|
$ |
3,902,073 |
|
|
$ |
2,273,269 |
|
During
the period ended March 31, 2020 and December 31, 2019, the Company
recorded derivative liabilities for embedded conversion features
related to convertible notes payable of $672,749 and $0,
respectively.
During
the period ended March 31, 2020 and December 31, 2019, in
conjunction with convertible notes payable accrued interest being
converted into common stock of the Company, derivative liabilities
were reduced by $266,927 and $5,077, respectively.
For
the period ended March 31, 2020 and December 31, 2019, the Company
performed a final mark-to-market adjustment for the derivative
liability related to the convertible notes and the carrying amount
of the derivative liability related to the conversion feature and
recognized a loss of $1,222,982 and a gain on the derivative
liability valuation of $13,068,808, respectively.
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. During the three months ended March 31, 2020, the
company used the following assumptions in their Black-Scholes
model: (1) risk free interest rate .01% - 1.61%, (2) term of 0.12
years – 4.31 years, (3) expected stock volatility of 411.61% -
2,185.95%, (4) expected dividend rate of 0%, (5) common stock price
of $0.003 - $0.0373, and (6) exercise price of $0.0008 -
$0.03.
These
instruments were not issued with the intent of effectively hedging
any future cash flow, fair value of any asset, liability or any net
investment in a foreign operation. The instruments do not qualify
for hedge accounting, and as such, all future changes in the fair
value will be recognized in earnings until such time as the
instruments are exercised, converted or expire.
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, 2020, the Company accrued wages of $50,000, accrued
interest of $472 and made payments of $12,031.
Pursuant to the Merger Agreement, Mr. Lewis is to receive 500,000
shares of Preferred Series A shares, valued at $5,000,000. The
shares are 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. During the three months ended March 31,
2020, the Company issued 500,000 shares of Preferred Series A to
Mr. Lewis and $500 was reclassed from liabilities for unissued
shares to equity.
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, 2020, the Company accrued $12,500
in consulting fees in connection to his agreement.
Mr.
Daniel Rushford, former President
During
the three months ended March 31, 2020, the Company’s former
President cancelled 8,008,334 shares of common stock issued to
settle debt of $25,265 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 $25,265.
NOTE
12 – LONG TERM DEBT
As of
March 31, 2020 and December 31, 2019, long term debt was comprised
of the following:
|
|
March 31, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
Long term debt |
|
|
|
|
|
|
|
|
Equipment lease |
|
$ |
— |
|
|
$ |
1,952 |
|
Equipment
loan |
|
|
115,614 |
|
|
|
115,614 |
|
Line of credit |
|
|
98,772 |
|
|
|
96,664 |
|
Other
loan term loans |
|
|
59,791 |
|
|
|
93,657 |
|
Total long term debt |
|
$ |
274,177 |
|
|
$ |
307,887 |
|
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.
During the three months ended March 31, 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.
As of
March 31, 2020, 30,000,000 Series A Preferred shares and 1,000
Series B Preferred shares were authorized, of which 400,000 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 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.
During
the three months ended March 31, 2020, the Company’s former
President cancelled 8,008,334 shares of common stock issued to
settle debt of $25,265 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 $25,265.
During
the three months ended March 31, 2020, the holders of a convertible
notes converted $46,346 of principal, $26,642 of accrued interest
and $8,375 in conversion fees into 32,260,676 shares of common
stock. The common stock was valued at $266,927 based on the market
price of the Company’s stock on the date of conversion.
As of March 31, 2020, 10,000,000,000 were authorized, of which
34,595,672 shares are issued and outstanding.
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.
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, 2020:
|
|
March 31, |
|
|
|
2020 |
|
Net operating loss |
|
$ |
1,487,179 |
|
Statutory rate |
|
|
21 |
% |
Expected tax recovery |
|
|
312,208 |
|
Change in
valuation allowance |
|
|
(312,308 |
) |
Income tax provision |
|
$ |
— |
|
|
|
|
|
|
Components of deferred tax
asset: |
|
|
|
|
Non-capital tax loss
carry-forwards |
|
|
312,308 |
|
Less:
valuation allowance |
|
|
(312,308 |
) |
Net deferred
tax asset |
|
$ |
— |
|
As of
the date of this filing, the Company is current in filing their tax
returns. The last return filed by the Company was December 31,
2018, and the Company has not accrued any potential penalties or
interest from that period forward.
NOTE
16 – COMMITMENTS AND CONTINGENCIES
Distribution
& Licensing Agreement
On
November 19, 2019, the Company entered into a Distribution &
Licensing Agreement with Bgreen Partners, Inc., a California
Corporation. The Agreement provides exclusive rights to various
cannabis and agricultural products inclusive of grow-containers and
CBD Extraction Systems to be used for mobile processing.
The IP and rights are valued at
$4,000,000, based upon a five-year term. As consideration for the
IP and rights, the Company issued 400,000 Preferred Series A 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.
Employee
Agreement
On
November 22, 2019, the Company entered into an Employment Agreement
with Mr. Daniel Rushford. Mr. Rushford will receive an annual
salary of $36,000 to be paid in equal monthly installments. Unpaid
amounts will accrue annual interest of 6%. The term of the
Consulting Agreement is for one year and is renewable upon mutual
consent.
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.
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
Convertible
Notes
On
May 1, 2020, the Company entered in a Convertible Promissory Note
in the amount of $90,000. The note will be funded in three tranches
of $30,000 each, is unsecured and bears interest at 10% per annum.
The maturity date for each tranche funded shall be twelve (12)
months from the effective date of each payment.
On
May 26, 2020, the Company entered in a Convertible Promissory Note
in the amount of $15,000. The note is unsecured, bears interest at
10% per annum, and matures on May 26, 2021.
On
June 3, 2020, the Company entered in a Convertible Promissory Note
in the amount of $63,000. The note is unsecured, bears interest at
10% per annum, and matures on June 3, 2021.
Subsequent
Issuances
During
the period of April 1 to June 10, 2020, the holders of a
convertible notes converted $218,981 of principal, accrued interest
and conversion fees into 107,109,130 shares of common
stock.
On
May 19, 2020, 12,906 shares of Series A preferred stock were
converted to 18,980,000 common shares in accordance with the
conversion terms.
On
May 22, 2020, 49,000 shares of Series A preferred stock were
converted to 70,000,000 common shares in accordance with the
conversion terms.
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The
following discussion and analysis summarizes the significant
factors affecting our consolidated results of operations, financial
condition and liquidity position for the three months ended March
31, 2020. This discussion and analysis should be read in
conjunction with our audited financial statements and notes thereto
included in our Annual Report on Form 10-K for our year-ended
December 31, 2019 and the consolidated unaudited financial
statements and related notes included elsewhere in this filing. The
following discussion and analysis contains forward-looking
statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements.
FORWARD-LOOKING
STATEMENTS
This
quarterly report contains forward-looking statements relating to
future events or our future financial performance. In some cases,
you can identify forward-looking statements by terminology such as
“may”, “should”, “intends”, “expects”, “plans”, “anticipates”,
“believes”, “estimates”, “predicts”, “potential”, or “continue” or
the negative of these terms or other comparable terminology. These
statements are only predictions and involve known and unknown
risks, uncertainties and other factors which may cause our or our
industry’s actual results, levels of activity or performance to be
materially different from any future results, levels of activity or
performance expressed or implied by these forward-looking
statements.
Although
we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity or performance. You should not place undue
reliance on these statements, which speak only as of the date that
they were made. These cautionary statements should be considered
with any written or oral forward-looking statements that we may
issue in the future. Except as required by applicable law,
including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform
these statements to actual results, later events or circumstances
or to reflect the occurrence of unanticipated events.
In
this report unless otherwise specified, all dollar amounts are
expressed in United States dollars and all references to “common
shares” refer to the common shares of our capital stock.
The
management’s discussion and analysis of our financial condition and
results of operations are based upon our financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States of America
(“GAAP”).
As
used in this quarterly report, the terms “we”, “us”, “our”, and
“our company” means BrewBilt Manufacturing, Inc., unless otherwise
indicated.
RESULTS
OF OPERATIONS
Results
for the Three Months Ended March 31, 2020 Compared to the Three
Months Ended March 31, 2019
Revenues:
The
Company’s revenues were $38,934 for the three months ended March
31, 2020 compared to $332,068 for the three months ended March 31,
2019. The decrease is due to the office closing due to
COVID-19.
Cost of Sales:
The
Company’s cost of materials was $21,623 for the three months ended
March 31, 2020, compared to $306,970 for the three months ended
March 31, 2019. The decrease was due to an increase in unfinished
projects due to COVID-19.
Operating Expenses:
Operating
expenses consisted primarily of consulting fees, professional fees,
salaries and wages, office expenses and fees associated with
preparing reports and SEC filings relating to being a public
company. Operating expenses for the three months ended March 31,
2020, and March 31, 2019, were $302,492 and $287,995, respectively.
The increase was primarily attributable to an increase in salaries
and wages, and consulting fees.
Other Income (Expense):
Other
income (expense) for the three months ended March 31, 2020 and 2019
was $(1,851,208) and $0, respectively. Other income (expense)
consisted of losses on derivative valuation, and interest expense.
The loss on derivative valuation is directly attributable to the
change in fair value of the derivative liability. Interest expense
is primarily attributable the initial interest expense associated
with the valuation of derivative instruments at issuance and the
accretion of the convertible debentures over their respective
terms. The variance primarily resulted from the fluctuation of the
Company’s stock price which impacted the valuation of the
derivative liabilities on the convertible debt.
Net Loss:
Net
loss for the three months ended March 31, 2020 was $2,136,389,
compared with $262,897 for the three months ended March 31, 2019.
The increased loss can be explained by the loss in fair value of
the derivative instruments in the three months ended March 31,
2020.
Impact
of Inflation
We
believe that the rate of inflation has had a negligible effect on
our operations.
Liquidity
and Capital Resources
|
|
March 31, 2020 |
|
|
December 31, 2019 |
|
|
|
$ |
|
|
$ |
|
Current Assets |
|
|
665,231 |
|
|
|
435,164 |
|
Current Liabilities |
|
|
8,211,168 |
|
|
|
6,109,932 |
|
Working Capital (Deficit) |
|
|
(7,545,937 |
) |
|
|
(5,674,768 |
) |
As of
March 31, 2020, the Company had $620 and $1,170,672 in cash and
total assets, as well as $8,870,007 in total liabilities as
compared to $1,444 and $949,010 in cash and total assets, and
$6,810,483 in total liabilities as of December 31, 2019. The
decrease in cash was due to a decrease in customer orders. The
increase in total liabilities was primarily attributed to the
increase in notes payable, interest and derivative
liabilities.
The
Company requires additional capital to fully execute its marketing
program and increase revenues. Presently we are relying on short
term loans from our sole officer and director to meet operational
shortfalls. There can be no assurance that continued funding will
be available on satisfactory terms. We intend to raise additional
capital through the sale of equity, loans or other short-term
financing options.
|
|
March 31, 2020 |
|
|
March 31, 2019 |
|
|
|
$ |
|
|
$ |
|
Cash Flows from (used in)
Operating Activities |
|
|
(235,892 |
) |
|
|
48,414 |
|
Cash Flows from (used in) Investing
Activities |
|
|
12,403 |
|
|
|
14,488 |
|
Cash Flows from (used in) Financing
Activities |
|
|
222,665 |
|
|
|
(22,296 |
) |
Net Increase (decrease) in Cash During
Period |
|
|
(824 |
) |
|
|
40,606 |
|
During
the three months ended March 31, 2020, cash used in operating
activities was $(235,892) compared to $48.414 for the three months
ended March 31, 2019. The variance is primarily resulted from the
derivative liability fair value gain.
During
the three months ended March 31, 2020 cash used in investing
activities was $12,403 compared to $14,488 for the three months
ended March 31, 2019. The increase in cash from financing activity
primarily resulted from an increase in the proceeds from
convertible debt during the three months ended March 31,
2020.
Contractual
Obligations
We
are a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and are not required to provide the
information under this item.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital
resources that are material to stockholders.
Critical
Accounting Policies and Estimates
The
preparation of our financial statements requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. On an on-going basis, management evaluates its estimates
and judgments which are based on historical experience and on
various other factors that are believed to be reasonable under the
circumstances. The results of their evaluation form the basis for
making judgments about the carrying values of assets and
liabilities. Actual results may differ from these estimates under
different assumptions and circumstances. Our significant accounting
policies are more fully discussed in the Notes to our Financial
Statements, included herein.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments –
Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. The guidance requires companies to measure
credit losses utilizing a methodology that reflects expected credit
losses and requires the consideration of a broader range of
reasonable and supportable information to inform credit loss
estimates. ASU 2016-13 is effective for fiscal years beginning
after December 15, 2019, including interim periods within
those fiscal years. The Company adopted the standard in the first
quarter of fiscal 2020 and there was no material impact.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
A
smaller reporting company is not required to provide the
information required by this Item.
ITEM 4. CONTROLS AND
PROCEDURES
Management’s
Report on Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our reports
filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules
and forms, and that such information is accumulated and
communicated to our management, including our president and chief
financial officer (our principal executive officer, principal
financial officer and principal accounting officer) to allow for
timely decisions regarding required disclosure.
As of
the end of the quarter covered by this report, we carried out an
evaluation, under the supervision and with the participation of our
president and chief financial officer (our principal executive
officer, principal financial officer and principal accounting
officer), of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our
president and chief financial officer (our principal executive
officer, principal financial officer and principal accounting
officer) concluded that our disclosure controls and procedures were
not effective as of the end of the period covered by this quarterly
report. Our company is in the process of adopting specific internal
control mechanisms to ensure effectiveness as we grow, and we will
work to retain additional qualified individuals to ensure a proper
segregation of duties. We have engaged an outside consultant to
assist in adopting new measures to improve upon our internal
controls. Future controls, among other things, will include more
checks and balances and communication strategies between the
management and the board, once we are able to secure additional
board members, to ensure efficient and effective oversight
over company activities as well as more stringent accounting
policies to track and update our financial reporting.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting
during the quarterly period covered by this report that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II – OTHER
INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
We
know of no material, existing or pending legal proceedings against
us, nor are we involved as a plaintiff in any material proceeding
or pending litigation. There are no proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial
shareholder, is an adverse party or has a material interest adverse
to our company.
ITEM 1A. RISK FACTORS
A
smaller reporting company is not required to provide the
information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
Quarterly
Issuances
During
the three months ended March 31, 2020, the holders of a convertible
notes converted $46,346 of principal, $26,642 of accrued interest
and $8,375 in conversion fees into 32,260,676 shares of common
stock. The common stock was valued at $266,927 based on the market
price of the Company’s stock on the date of conversion.
In
respect of the aforementioned convertible loan agreement(s)
and the underlying shares, as well as shares issued to a director
and consultant, the Company will claim an exemption from the
registration requirements of the Securities Act of 1933, as
amended, for the issuance of the shares pursuant to Section 4(2) of
the Act and/or Rule 506 of Regulation D promulgated thereunder
since, among other things, the transaction does not involve a
public offering, the purchasers are “accredited investors” and/or
qualified institutional buyers, the purchasers have access to
information about the Company and its purchase, the purchasers will
take the securities for investment and not resale.
Other
than as disclosed above, there were no unregistered securities to
report which were sold or issued by the Company without the
registration of these securities under the Securities Act of 1933
in reliance on exemptions from such registration requirements,
within the period covered by this report, which have not been
previously included in a Quarterly Report on Form 10-Q or a Current
Report on Form 8-K.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4. MINE SAFETY
DISCLOSURES
Not
Applicable.
ITEM 5. OTHER
INFORMATION
None.
ITEM 6. EXHIBITS
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
BrewBilt
Manufacturing Inc. |
|
|
Date:
June 29, 2020 |
By:
/s/ Jef Lewis |
|
|
|
Chief
Executive Officer |
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.