UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 |
For the transition period from ______ to _______
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | o | |
| o | (Do not check if a smaller reporting company) | Smaller reporting company |
| |
| Emerging growth company | o | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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As
of May 15, 2024, there were
1
BREWBILT BREWING COMPANY
TABLE OF CONTENTS
Special Note Regarding Forward-Looking Statements
Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of BrewBilt Brewing Company (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies, and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Please note that throughout this Quarterly Report, and unless otherwise noted, the words “we,” “BRBL,” “our,” “us,” the “Company,” refers to BrewBilt Brewing Company
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
| BREWBILT BREWING COMPANY |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (unaudited) | (audited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Finance lease assets | ||||||||
| Finance lease assets - related party | ||||||||
| Operating right-of-use assets | ||||||||
| Security deposit | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued wages | ||||||||
| Accrued expenses | ||||||||
| Accrued interest | ||||||||
| Convertible notes payable in default | ||||||||
| Current finance lease liabilities | ||||||||
| Current finance lease liabilities - related party | ||||||||
| Current operating lease liabilities | ||||||||
| Deferred revenue | ||||||||
| Derivative liabilities | ||||||||
| Loans payable | ||||||||
| Related party liabilities, net of discount | ||||||||
| Total Current liabilities | ||||||||
| Non-current finance lease liabilities | ||||||||
| Non-current finance lease liabilities - related party | ||||||||
| Non-current note payable | — | |||||||
| Non-current operating lease liabilities | ||||||||
| Non-current related party note payable | ||||||||
| Total liabilities | ||||||||
| Series A convertible preferred stock: shares authorized, par value $ shares issued and outstanding at March 31, 2024 shares issued and outstanding at December 31, 2023 | ||||||||
| Convertible preferred stock payable | ||||||||
| Convertible preferred stock receivable | — | ( | ) | |||||
| Stockholders’ deficit: | ||||||||
| Series B preferred stock: shares authorized, par value $ shares issued and outstanding at March 31, 2024 shares issued and outstanding at December 31, 2023 | — | — | ||||||
| Common stock: shares authorized, par value $ shares issued and outstanding at March 31, 2024 shares issued and outstanding at December 31, 2023 | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements
3
| BREWBILT BREWING COMPANY |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| (Unaudited) |
| Three months ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit (loss) | ( | ) | ||||||
| Operating expenses: | ||||||||
| Depreciation | ||||||||
| G&A expenses | ||||||||
| Professional fees | ||||||||
| Salaries and wages | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest income | ||||||||
| Gain on settlement of debt | — | |||||||
| Loss on conversion of debt | — | ( | ) | |||||
| Loss on conversion of preferred shares | — | ( | ) | |||||
| Loss on conversion of preferred shares - related party | — | ( | ) | |||||
| Loss on royalties | ( | ) | — | |||||
| Loss on royalties - related party | ( | ) | — | |||||
| Derivative income (expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest expense - related party | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ||||||
| Net loss before income taxes | ( | ) | ||||||
| Income tax expense | — | — | ||||||
| Net profit (loss) | $ | $ | ( | ) | ||||
| Deemed dividend from note payable | ( | ) | — | |||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Per share information | ||||||||
| Weighted average number of common shares outstanding, basic | ||||||||
| Net loss per common share, basic, attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Per share information | ||||||||
| Weighted average number of common shares outstanding, diluted | ||||||||
| Net loss per common share, diluted, attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these financial statements
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| BREWBILT BREWING COMPANY |
| CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT |
| (Unaudited) |
| Convertible Preferred Stock | Preferred Stock | Additional | Total | |||||||||||||||||||||||||||||||||||||||||
| Series A (1) | Shares | Shares | Series B | Common Stock (1) | Paid-In | Accumulated | Shareholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Receivable | Payable | Shares | Amount | Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||||||||||||||||||||
| Balances for December 31, 2022 | $ | $ | — | $ | $ | — | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Conversion of debt to common stock | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Convertible preferred stock converted to common stock | ( | ) | ( | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Convertible preferred stock converted to common stock - related party | ( | ) | ( | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Convertible preferred stock to be issued pursuant to director and officer agreements | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to equity purchase agreement | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Cashless warrant exercise | — | — | — | — | — | — | ( | ) | — | — | ||||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Derivative settlements | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balances for March 31, 2023 | $ | $ | — | $ | $ | — | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Convertible Preferred Stock | Preferred Stock | Additional | Total | |||||||||||||||||||||||||||||||||||||||||
| Series A (1) | Shares | Shares | Series B | Common Stock (1) | Paid-In | Accumulated | Shareholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Receivable | Payable | Shares | Amount | Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||||||||||||||||||||
| Balances for December 31, 2023 | $ | $ | ( | ) | $ | $ | — | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Deemed dividend from convertible preferred stock issued with a note payable | — | — | — | — | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Convertible preferred stock payable converted to preferred stock | — | ( | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Convertible preferred stock receivable converted to preferred stock | ( | ) | ( | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net profit (loss) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Balances for March 31, 2024 | $ | $ | — | $ | $ | — | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements
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| BREWBILT BREWING COMPANY |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| Three months ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net profit (loss) | ( | ) | ||||||
| Adjustments to reconcile net profit (loss) to net cash used in operating activities: | ||||||||
| Amortization of debt discount | ||||||||
| Depreciation | ||||||||
| Stock based compensation | — | |||||||
| Gain on settlement of debt | — | ( | ) | |||||
| Imputed interest | ||||||||
| Loss on conversion of debt | — | |||||||
| Loss on conversion of preferred shares | — | |||||||
| Loss on conversion of preferred shares - related party | — | |||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||
| Decrease (increase) in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Other current assets | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Accrued interest | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Advances from related parties | ( | ) | ||||||
| Deferred revenue | — | |||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Property, plant and equipment, additions | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from promissory notes | ||||||||
| Payments on promissory notes | ( | ) | ( | ) | ||||
| Proceeds from related party notes | — | |||||||
| Payments on related party notes | ( | ) | — | |||||
| Payments on finance lease | ( | ) | ( | ) | ||||
| Payments on related party finance lease | ( | ) | — | |||||
| Proceeds from sale of stock | — | |||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for income taxes | $ | — | $ | — | ||||
| Cash paid for interest | $ | $ | — | |||||
| Schedule of non-cash investing & financing activities: | ||||||||
| Fixed assets acquired with capitalized finance lease | $ | $ | — | |||||
| Debt converted to common stock | $ | — | $ | |||||
| Preferred stock converted to common stock | $ | — | $ | |||||
| Preferred stock converted to common stock - related parties | $ | — | $ | |||||
| Deemed dividend from preferred stock issued with a note payable | $ | $ | — | |||||
| Preferred stock payable converted to preferred stock | $ | $ | — | |||||
| Preferred stock receivable converted to preferred stock | $ | $ | — | |||||
| Derivative settlements | $ | — | $ | |||||
| Cashless warrant exercise | $ | — | $ | |||||
| Fixed assets acquired with debt | $ | — | $ | |||||
| Fixed assets acquired with related party accounts payable | $ | — | $ | |||||
| Convertible note payable exchange for accrued interest | $ | $ | — | |||||
The accompanying notes are an integral part of these financial statements
6
BREWBILT BREWING COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
BrewBilt Brewing Company, a Florida Corporation, wholly owns BrewBilt Brewing LLC, a California Limited Liability Corporation located in the Sierra Foothills of Northern California. BrewBilt Brewing LLC is a Type 23 licensed brewery with the California Alcoholic Beverage Control Board (ABC). The Company began building its first processing brewery in 2021 and started delivering its craft beers in July of 2022.
The Company opened the BrewBilt BrewHaus taproom and restaurant in Nevada City, CA in December 2023. The establishment seats 140 people and serves lunch and dinner six days a week, plus brunch on Sundays, along with the full lineup of BrewBilt beers and guest wines, ciders, kombuchas, and non-alcoholic beverages.
BrewBilt Brewing is devoted to the modern execution of traditional styles utilizing hand-crafted, industry-leading equipment combined with an artful approach and a passion for quality. A focus on regionally sourced local ingredients gives the company its dynamic palette for distinctly satisfying beers. Inspired by European brewing tradition and American craft innovation, BrewBilt Brewing creates craft beers that reflect a sense of place in order to share their brewing philosophy for the ultimate drinking pleasure.
Among all craft breweries, BrewBilt Brewing is unique in its exclusive use of small-batch craft malt that is grown in the nearby Sacramento Valley. In addition to the flavor benefits of this superior product, BrewBilt’s intentional material sourcing reduces the Company’s carbon footprint and sustains local agriculture. Even after brewing with these grains, BrewBilt implements eco-friendly practices such as upcycling the spent grain to local ranchers to use as high-quality animal feed.
Financial Statement Presentation
The unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Reclassification
Certain prior period amounts have been reclassified to conform to current period presentation.
Fiscal Year End
The Company has selected December 31 as its fiscal year end.
Use of Estimates
The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management regularly evaluates estimates and assumptions related to the valuation of assets and liabilities.
Management bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from managements estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates include:
| ■ | Liability for legal contingencies. |
| ■ | Useful life of assets. |
| ■ | Deferred income taxes and related valuation allowances. |
| ■ | Impairment of fixed assets. |
| ■ | Obsolescence of inventory. |
| ■ | Stock-based compensation calculated using the lattice pricing model. |
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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.
Advertising Costs
The
Company expenses the cost of advertising and promotional materials when incurred. Total advertising costs were $
Leases
In February 2016, the FASB issued ASU 2016-02, “Leases” Topic 842, which amends the guidance in former ASC Topic 840, Leases. The new standard increases transparency and comparability most significantly by requiring the recognition by lessees of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases longer than 12 months. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. For lessees, leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
Revenue Recognition and Related Allowances
On January 1, 2018, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605). Results for reporting periods beginning after January 1, 2018 are presented under Topic 606. The impact of adopting the new revenue standard was not material to our financial statements and there was no adjustment to beginning retained earnings on January 1, 2018.
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
| ● | identification of the contract, or contracts, with a customer; | |
| ● | identification of the performance obligations in the contract; | |
| ● | determination of the transaction price; | |
| ● | allocation of the transaction price to the performance obligations in the contract; and | |
| ● | recognition of revenue when, or as, we satisfy a performance obligation. | |
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, 2024 and December 31, 2023, the Company has deferred revenue of $13,108 and $6,270, respectively.
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 a due date basis. The allowance for doubtful accounts at March 31, 2024 and December 31, 2023 is $0.
8
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.
In accordance with ASC Topic 280 – “Earnings Per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. 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. During the three months ended March 31, 2024 and March 31, 2023, the number of diluted shares that have been excluded are and , respectively.
Inventories
Inventories
consist of raw materials, beer cans and labels, keg collars and toppers, inbound freight charges, purchasing and receiving costs, direct
labor, depreciation, overhead, and finished goods. Inventories are stated at the lower of cost, computed using the first-in, first-out
method and net realizable value. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings
in the current period. As of March 31, 2024 and December 31, 2023, the Company has inventory of $
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Brewery inventory | ||||||||
| Depreciation | $ | $ | ||||||
| Direct labor | ||||||||
| Finished goods | ||||||||
| Overhead | ||||||||
| Raw materials and packaging | ||||||||
| Total brewery inventory | $ | $ | ||||||
| Taproom inventory | ||||||||
| Beverages | $ | $ | ||||||
| Food | ||||||||
| Total taproom inventory | $ | $ | ||||||
| Total inventory | $ | $ | ||||||
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. For the three months ended March 31, 2024 and the year ended December 31, 2023, there were no impairment losses recognized for long-lived assets.
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.
9
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.
The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 for each fair value hierarchy level:
| March 31, 2024 | Derivative Liabilities | Total | ||||||
| Level I | $ | — | $ | — | ||||
| Level II | $ | — | $ | — | ||||
| Level III | $ | $ | ||||||
| December 31, 2023 | Derivative Liabilities | Total | ||||||
| Level I | $ | — | $ | — | ||||
| Level II | $ | — | $ | — | ||||
| Level III | $ | $ | ||||||
In management’s opinion, the fair value of convertible notes payable and advances payable is approximate to carrying value as the interest rates and other features of these instruments approximate those obtainable for similar instruments in the current market. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, exchange or credit risks arising from these financial instruments. As of March 31, 2024 and December 31, 2023, 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.
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As of the date of this filing, the Company is not current in filing their tax returns. The last return filed by the Company was December 31, 2017, and the Company has not accrued any potential penalties or interest from that period forward. The Company will need to file returns for the years ending December 31, 2023, 2022, 2021, 2020, 2019, and 2018, which are still open for examination.
Recent Accounting Pronouncements
Although there were new accounting pronouncements issued or proposed by the FASB for the three months ended March 31, 2024, 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.
2. GOING CONCERN
The
accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of March 31, 2024, the
Company has a shareholders’ deficit of $
The Company does not have sufficient cash to fund its desired business objectives for its production and marketing for the next 12 months. The Company has arranged financing and intends to utilize the cash received to fund the production and marketing of more beers. This financing may be insufficient to fund expenditures or other cash requirements required to complete the product design for the augmented/virtual reality markets. There can be no assurance the Company will be successful in completing any new product development. The Company plans to seek additional funding if necessary, in private or public equity offering(s) to secure future funding for operations. There can be no assurance the Company will be successful in raising additional funding. If the Company is not able to secure additional funding, the implementation of the Company’s business plan will be impaired. There can be no assurance that such additional financing will be available to the Company on acceptable terms or at all.
These financial statements do not give effect to adjustments to the amounts and classification to assets and liabilities that would be necessary should the Company be unable to continue as a going concern.
3. PREPAID EXPENSES
Prepaid fees represent amounts paid in advance for future contractual benefits to be received. Expenses paid in advance are recorded as a prepaid asset and then amortized to the statements of operations when services are rendered, or over the life of the contract using the straight-line method.
As of March 31, 2024 and December 31, 2023, prepaid expenses consisted of the following:
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Prepaid advertising expenses | $ | — | $ | |||||
| Prepaid insurance | ||||||||
| Prepaid rent | — | |||||||
| Prepaid transfer agent fees | ||||||||
| $ | $ | |||||||
11
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost or fair value as of the date of acquisition. Expenditures for repairs and maintenance are expensed as incurred. Major renewals and betterments that extend the life of the property are capitalized. Depreciation is computed using the straight-line method based upon the estimated useful lives of the underlying assets as follows:
| Kegs | 10 years |
| Computer software and equipment | 2 to 5 years, or the term of a software license, whichever is shorter |
| Office equipment and furniture | 3 to 7 years |
| Machinery and equipment | 3 to 20 years |
| Leasehold improvements | Lesser of the remaining term of the lease or estimated useful life of the asset |
Property, plant, and equipment consisted of the following as of March 31, 2024 and December 31, 2023:
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Brewing Equipment | $ | $ | ||||||
| Computer Equipment | ||||||||
| Furniture and Fixtures | ||||||||
| Leasehold Improvements | ||||||||
| Vehicles | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
During
the three months ended March 31, 2024, the Company recorded Taproom leaseholder improvements of $
5. ACCRUED EXPENSES
As of March 31, 2024 and December 31, 2023, accrued expenses were comprised of the following:
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accrued expenses | ||||||||
| Credit cards | $ | $ | ||||||
| CRV payable | ||||||||
| Customer keg deposits | ||||||||
| Payroll liabilities | ||||||||
| Sales tax payable | ||||||||
| Other short-term liabilities | ||||||||
| Total accrued expenses | $ | $ | ||||||
| Accrued interest | ||||||||
| Interest on accrued wages | $ | $ | ||||||
| Interest on notes payable | ||||||||
| Total accrued interest | $ | $ | ||||||
| Accrued wages | $ | $ | ||||||
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6. CONVERTIBLE NOTES PAYABLE
As of March 31, 2024 and December 31, 2023, convertible notes payable was comprised of the following:
| Original | Due | Interest | Conversion | March 31, | December 31, | |||||||||||
| Note Date | Date | Rate | Rate | 2024 | 2023 | |||||||||||
| 1800 Diagonal #2* | Variable | |||||||||||||||
| 1800 Diagonal #3* | Variable | |||||||||||||||
| 1800 Diagonal #4* | Variable | |||||||||||||||
| Coventry* | Variable | |||||||||||||||
| Emunah Funding #4* | Variable | |||||||||||||||
| FirstFire Global* | Variable | |||||||||||||||
| Fourth Man #14* | Variable | |||||||||||||||
| Jefferson St Capital #2* | Variable | |||||||||||||||
| Mammoth* | Variable | |||||||||||||||
| Mast Hill Fund #1* | Variable | |||||||||||||||
| Mast Hill Fund #2* | Variable | |||||||||||||||
| Mast Hill Fund #3* | Variable | |||||||||||||||
| Mast Hill Fund #5* | Variable | |||||||||||||||
| Mast Hill Fund #6* | Variable | |||||||||||||||
| Pacific Pier Capital #1* | Variable | |||||||||||||||
| Pacific Pier Capital #2* | Variable | |||||||||||||||
| Total convertible notes payable | $ | $ | ||||||||||||||
| * |
1800 Diagonal Lending LLC (formerly Sixth Street Lending LLC)
On November 2, 2022, the Company issued a convertible note to 1800 Diagonal Lending LLC for $54,250, of which $50,000 was received in cash, and $4,250 was recorded as transaction fees. The note bears interest at 10% (increases to 22% per annum upon an event of default), matures on November 2, 2023, and is convertible beginning on the date which is 180 days following the date of the note. The conversion price is 61% multiplied by the average of the two lowest closing prices during the 20-day trading period on the trading day prior to the conversion date. On April 17, 2023, a default penalty of $27,125 was accessed by the note holder for failure of timely filing of the company’s Form 10-K. Pursuant to the default, the Company recorded a debt discount from the derivative equal to $50,000 due to this conversion feature, which, in addition to the transaction fees, has been amortized to the statement of operations. As of March 31, 2024, the note has a principal and accrued interest balance of $81,375 and $19,585, respectively. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On November 28, 2022, the Company issued a convertible note to 1800 Diagonal Lending LLC for $44,250, of which $40,000 was received in cash, and $4,250 was recorded as transaction fees. The note bears interest at 10% (increases to 22% per annum upon an event of default), matures on November 28, 2023, and is convertible beginning on the date which is 180 days following the date of the note. The conversion price is 61% multiplied by the average of the two lowest closing prices during the 20-day trading period on the trading day prior to the conversion date. On April 17, 2023, a default penalty of $22,125 was accessed by the note holder for failure of timely filing of the company’s Form 10-K. Pursuant to the default, the Company recorded a debt discount from the derivative equal to $40,000 due to this conversion feature, which, in addition to the transaction fees, has been amortized to the statement of operations. As of March 31, 2024, the note has a principal and accrued interest balance of $66,375 and $15,660, respectively. This note is currently in default.
13
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On January 10, 2023, the Company received funding pursuant to a promissory note with 1800 Diagonal Lending LLC in the amount of $61,600, of which, $50,750 was received in cash and $10,850 was recorded as debt issuance fees, which will be amortized over the life of the note. The note bears interest of 12% (increases to 22% per annum upon an event of default), which is guaranteed and earned in full as of the issue date. The note matures on January 10, 2024. The principal amount and the guaranteed interest are due and payable in ten equal monthly payments of $6,899, commencing on March 1, 2023 and continuing on the 1st day of each month thereafter. On April 17, 2023, the Company defaulted on the promissory note, and pursuant to the terms, the note became convertible. The company reclassed $49,280 in principal, $5,914 in accrued interest and assessed a default penalty of $27,597 to convertible notes payable. The note is convertible into common stock at 75% of the lowest trading price of the 10-trading day period ending on the latest complete day prior to the date of conversion. Pursuant to the default, the Company recorded a debt discount from the derivative equal to $76,877 due to this conversion feature, which, in addition to the transaction fees, has been amortized to the statement of operations. As of March 31, 2024, the note has a principal and accrued interest balance of $76,877 and $18,656, respectively. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Coventry Enterprises LLC
On October 7, 2022, the Company received funding pursuant to a promissory note with Coventry Enterprises LLC in the amount of $125,000. The note bears interest of 10% (increases to 18% per annum upon an event of default), which is guaranteed and earned in full as of the issue date. The note matures on October 7, 2023. On March 7, 2023, the Company defaulted on the promissory note, and pursuant to the terms, the note became convertible. The company reclassed $125,000 in principal, $12,500 in accrued interest and assessed a default penalty of $25,000 to convertible notes payable. The conversion price of this note is 90% per share of the lowest per-share VWAP during the 20 trading days prior to the conversion date. The Company recorded a debt discount from the derivative equal to $73,665 due to this conversion feature which has been amortized to the statement of operations. During the year ended December 31, 2023, the Company issued 523,333,333 common shares upon the conversion of principal and interest in the amount of $33,420. As of March 31, 2024, the note has a principal and accrued interest balance of $139,638 and $19,511, respectively. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Emunah Funding LLC
On October 20, 2017, the Company issued a convertible note to Emunah Funding LLC for $33,840, which includes $26,741 to settle outstanding accounts payable, transaction costs of $4,065, OID interest of $2,840, and cash consideration of $194. On November 6, 2017, the Company issued an Allonge to the convertible debt in the amount of $9,720. The Company received $7,960 in cash and recorded transaction fees of $1,000 and OID interest of $760. On November 30, 2017, the Company issued an Allonge to the convertible debt in the amount of $6,480. The Company received $5,000 in cash and recorded transaction fees of $1,000 and OID interest of $480. On January 11, 2018, the Company issued an Allonge to the convertible debt in the amount of $5,400. The Company received $5,000 in cash and recorded OID interest of $400. The note bears interest of 8% (increases to 24% per annum upon an event of default), matured on July 20, 2018, and is convertible into common stock at the lower of 1) 50% of the lowest trading price of the 20-trading day period ending on the latest complete day prior to the date of conversion; or 2) the most favorable common stock conversion price. The Company recorded a debt discount from the derivative equal to $55,440 due to this conversion feature, which has been amortized to the statement of operations. On October 26, 2018, the principal amount of $40,000 was reassigned to Fourth Man, LLC. Pursuant to the default terms of the note, the Company entered a late filing penalty of $1,000. Prior to the period ended December 31, 2020, the note has converted $13,450 of principal and $4,918 of interest into .16 shares of common stock. As of March 31, 2024, the note has a principal balance of $2,990 and accrued interest of $3,411. This note is currently in default.
14
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
FirstFire Global Opportunity Fund LLC
On March 8, 2021, the Company received funding pursuant to a convertible note issued to FirstFire Global Opportunities Fund LLC for $300,000 of which $242,900 was received in cash and $57,100 was recorded as transaction fees. The note bears interest of 12% (increases to 16% per annum upon an event of default), matures on March 8, 2022, and is convertible into common shares at the lower of 1) a fixed rate of $0.005 or 2) the most favorable common stock conversion price. The Company recorded a debt discount from the derivative equal to $242,900 due to this conversion feature, which has been amortized to the statement of operations. Pursuant to the default terms of the note, the Company entered a penalty of $84,000. During the year ended December 31, 2021, the Company issued 135,000 common shares upon the conversion of principal in the amount of $235,000, and conversion fees of $5,000. During the year ended December 31, 2022, the Company issued 5,620,000 common shares upon the conversion of principal in the amount of $118,000, accrued interest of $36,000 and conversion fees of $2,500. As of March 31, 2024, the note has a principal balance of $31,000 and accrued interest of $13,289. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Fourth Man LLC
On December 22, 2022, the Company received funding pursuant to a convertible note issued to Fourth Man LLC for $52,000 of which $40,000 was received in cash and $12,000 was recorded as transaction fees. The note bears interest of 12% per annum (increases to 16% upon an event of default), which is guaranteed and earned in full as of the issue date. The note matures on December 22, 2023 and is convertible into common shares at the lower of 1) a fixed rate of $0.0009; or 2) the most favorable common stock conversion price. The Company recorded a debt discount from the derivative equal to $40,000 due to this conversion feature, which has been amortized to the statement of operations. Pursuant to the default terms of the note, the Company entered a penalty of $29,130, thereby increasing the principal balance of the note. During the three months ended March 31, 2024, the company reclassified $3,130 of the penalty from the principal balance to accrued interest to correct the balance per the note holder. As of March 31, 2024, the note has a principal balance of $78,000 and accrued interest of $12,778. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Jefferson Street Capital LLC
On March 5, 2019, the Company accepted and agreed to a Debt Purchase Agreement, whereby Jefferson Street Capital LLC acquired $30,000 of debt from an Emunah Funding LLC convertible note in exchange for $29,000, and the Company recorded a gain on settlement of debt of $1,000. The note bears no interest, matures on October 18, 2019, and is convertible into common stock at 57.5% of the lowest trading price of the 20 trading days ending on the latest complete day prior to the date of conversion. The Company recorded a debt discount from the derivative equal to $29,000 due to this conversion feature, which has been amortized to the statement of operations. During the year ended December 31, 2019, the Company issued .24 common shares upon the conversion of principal in the amount of $24,000 and $1,000 in conversion fees. As of March 31, 2024, the note has a principal balance of $5,000. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Mammoth Corporation
On March 3, 2022, the Company received funding pursuant to a convertible note issued to Mammoth Corporation for $27,500, of which $25,000 was received in cash and $2,500 was recorded as transaction fees. The note bears interest at 0% (18% per annum upon an event of default), matures on December 3, 2022, and converts into 50% multiplied by the average of the three lowest common stock trading prices during the 30-day trading period on the trading day prior to the conversion date. The Company recorded a debt discount from the derivative equal to $25,000 due to this conversion feature, which has been amortized to the statement of operations. As of March 31, 2024, the note has a principal balance of $27,500 and accrued interest of $11,548. This note is currently in default.
15
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Mast Hill Fund, LP
On January 27, 2022, the Company issued a convertible note to Mast Hill Fund, L.P. for $279,000, of which $75,550 was received in cash, $45,900 was recorded as transaction fees, and $157,550 was paid to Labrys Fund, L.P. to settle the principal amount of $140,000 and accrued interest of $16,800. The company recorded a loss on settlement of debt of $750. The note bears interest of 12% per annum, which will increase to 16% upon an event of default, matures on January 27, 2023, and is convertible into common shares at the lower of 1) a fixed rate of $0.90; or 2) the most favorable common stock conversion price. The Company recorded a debt discount from the derivative equal to $212,584 due to this conversion feature, which has been amortized to the statement of operations. Pursuant to the default terms of the note, the Company entered a penalty of $73,809. During the year ended December 31, 2022, the Company issued 933,000 common shares upon the conversion of principal in the amount of $30,213, accrued interest of $20,517, and conversion fees of $5,250. As of March 31, 2024, the note has a principal balance of $322,596 and accrued interest of $60,826. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On March 3, 2022, the Company received funding pursuant to a convertible note issued to Mast Hill Fund, L.P. for $63,000 of which $51,300 was received in cash and $11,700 was recorded as transaction fees. The note bears interest of 12% per annum, which will increase to 16% upon an event of default, matures on March 3, 2023, and is convertible into common shares at the lower of 1) a fixed rate of $0.30; or 2) the most favorable common stock conversion price. The Company recorded a debt discount from the derivative equal to $51,300 due to this conversion feature, which has been amortized to the statement of operations. Pursuant to the default terms of the note, the Company entered a penalty of $17,619. As of March 31, 2024, the note has a principal balance of $80,619 and accrued interest of $19,061. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On April 1, 2022, the Company received funding pursuant to a convertible note issued to Mast Hill Fund, L.P. for $425,000 of which $351,550 was received in cash and $73,450 was recorded as transaction fees. The note bears interest of 12% per annum, which will increase to 16% upon an event of default, matures on April 1, 2023, and is convertible into common shares at the lower of 1) a fixed rate of $0.18; or 2) the most favorable common stock conversion price. The Company recorded a debt discount from the derivative equal to $351,545 due to this conversion feature, which has been amortized to the statement of operations. Pursuant to the default terms of the note, the Company entered a penalty of $113,062. During the year ended December 31, 2022, the Company issued 25,380,509 common shares upon the conversion of principal in the amount of $43,856, accrued interest of $36,225, and conversion fees of $8,750. During the year ended December 31, 2023, the Company issued 27,305,900 common shares upon the conversion of principal in the amount of $52,664, accrued interest of $3,655, and conversion fees of $3,500. As of March 31, 2024, the note has a principal balance of $441,541 and accrued interest of $64,770. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
16
On September 6, 2022, the Company received funding pursuant to a convertible note issued to Mast Hill Fund, L.P. for $125,000 of which $103,250 was received in cash and $21,750 was recorded as transaction fees. The note bears interest of 12% per annum, which will increase to 16% upon an event of default, matures on September 6, 2023, and is convertible into common shares at the lower of 1) a fixed rate of $0.06; or 2) the most favorable common stock conversion price. The Company recorded a debt discount from the derivative equal to $103,250 due to this conversion feature, which has been amortized to the statement of operations. Pursuant to the default terms of the note, the Company entered a penalty of $31,805. During the year ended December 31, 2023, the Company issued 432,200,000 common shares upon the conversion of principal in the amount of $105,309, accrued interest of $7,885, and conversion fees of $3,500. As of March 31, 2024, the note has a principal balance of $51,496 and accrued interest of $4,514. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On October 14, 2022, the Company received funding pursuant to a convertible note issued to Mast Hill Fund, L.P. for $245,000 of which $202,270 was received in cash and $42,730 was recorded as transaction fees. The note bears interest of 12% per annum, which will increase to 16% upon an event of default, matures on October 14, 2023 and is convertible into common shares at the lower of 1) a fixed rate of $0.0035; or 2) the most favorable common stock conversion rate. The Company recorded a debt discount from the derivative equal to $202,270 due to this conversion feature, which has been amortized to the statement of operations. Pursuant to the default terms of the note, the Company entered a penalty of $64,512. During the year ended December 31, 2023, the Company issued 714,400,000 common shares upon the conversion of principal in the amount of $27,066, accrued interest of $25,286, and conversion fees of $3,500. As of March 31, 2024, the note has a principal balance of $282,446 and accrued interest of $26,170. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
Pacific Pier Capital LLC
On May 20, 2022, the Company received funding pursuant to a convertible note issued to Pacific Pier Capital LLC for $60,000 of which $47,760 was received in cash and $12,240 was recorded as transaction fees. The note bears interest of 12% per annum (increases to 16% upon an event of default), which is guaranteed and earned in full as of the issue date. The note matures on May 20, 2023 and is convertible into common shares at the lower of 1) a fixed rate of $0.105; or 2) the most favorable common stock conversion rate. Due to the default on May 20, 2023, the company recorded a default penalty of $16,800, thereby increasing the principal balance of the note. During the three months ended March 31, 2024, the company reclassified $1,800 of the penalty from the principal balance to accrued interest to correct the balance per the note holder. The Company recorded a debt discount from the derivative equal to $47,760 due to this conversion feature, which has been amortized to the statement of operations. During the year ended December 31, 2023, the Company issued 112,500,000 common shares upon the conversion of principal in the amount of $5,000, and conversion fees of $1,750. As of March 31, 2024, the note has a principal balance of $70,000 and accrued interest of $19,546. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
On November 3, 2022, the Company received funding pursuant to a convertible note issued to Pacific Pier Capital LLC for $20,000 of which $15,000 was received in cash and $5,000 was recorded as transaction fees. The note bears interest of 12% per annum (increases to 16% upon an event of default), which is guaranteed and earned in full as of the issue date. The note matures on November 3, 2023 and is convertible into common shares at the lower of 1) a fixed rate of $0.0015; or 2) the most favorable common stock conversion rate. The Company recorded a debt discount from the derivative equal to $15,000 due to this conversion feature, which has been amortized to the statement of operations. Due to the default on November 4, 2023, the company recorded a default penalty of $11,200, thereby increasing the principal balance of the note. During the three months ended March 31, 2024, the company reclassified $1,200 of the penalty from the principal balance to accrued interest to correct the balance per the note holder. As of March 31, 2024, the note has a principal balance of $30,000 and accrued interest of $5,586. This note is currently in default.
The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were indeterminate due to the lack on conversion price floor and, as such, does constitute a derivative liability as the Company has insufficient authorized shares.
17
7. 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 lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred, if any. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Our leases have remaining lease terms from 2 years to 4.5 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 August 1, 2021, the company entered into a commercial lease for approximately 6,547 square feet of space, located in the Wolf Creek Industrial Building at 110 Spring Hill Dr, Grass Valley, CA 95945. The lease has a term of five years, from August 1, 2021 through July 31, 2026, with a monthly rent of $4,000. On August 1, 2021, the Company recorded ROU assets of $203,216 and lease liabilities of $203,216 in recognition of this lease.
On August 26, 2022, the company entered into a commercial lease with 4-Corners LLC to establish a Tap Room as part of its brewery revenue. The space is located at 300 Spring St, Nevada City, CA 95959, and the lease has a term of five years, from September 1, 2022 through August 31, 2027. The rent is $3,000 per month from September 1, 2022 through December 31, 2022, $3,500 per month from January 1, 2023 through August 31, 2023, $3,800 per month from September 1, 2023 through August 31, 2024, $4,400 per month from September 1, 2024 through August 31, 2025, $4,700 per month from September 1, 2025 through August 31, 2026, and $4,914 per month from September 1, 2026 through August 31, 2027. On September 1, 2022, the Company recorded ROU assets of $212,040 and lease liabilities of $212,040 in recognition of this lease.
The Lease Agreement requires a personal guarantee from Jeffrey Lewis and Bennett Buchanan, both Director(s) of the Company, and the Company agreed to issue $300,000 in Series A Convertible Preferred shares each to Mr. Lewis and Mr. Buchanan as collateral for the personal guarantee. On August 25, 2022, the Company issued 1,118 shares of Series A Convertible Preferred stock to Jeffrey Lewis and Bennett Buchanan at $268.50 per share, for a total value of $600,366.
ROU assets and lease liabilities related to our operating leases are as follows:
| March 31, 2024 | ||||
| Right-of-use assets | $ | |||
| Current operating lease liabilities | ||||
| Non-current operating lease liabilities | ||||
18
The following is a schedule, by years, of future minimum lease payments required under the operating leases:
| Years Ending | ||||
| December 31, | Operating Leases | |||
| 2024 (remaining 9 months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total | ||||
| Less imputed Interest | ( | ) | ||
| Total liability | $ | |||
Other information related to leases is as follows:
| Lease Type | Weighted Average Remaining Term | Weighted Average Interest Rate | ||
| Operating Leases | 2.89 years | |||
Finance Leases
The Company evaluated the leases in accordance with ASC 842 and determined that its leases meet the definition of a finance lease.
On February 22, 2023, the Company entered into a Lease Agreement with American Keg Company to lease 132 kegs. The agreement is for a period of 36 months, with a monthly payment of $592. At the end of the lease the Company will own the kegs with a $1 per keg buyout. The Company recorded ROU assets of $19,259 and lease liabilities of $19,259 in recognition of this lease.
On April 26, 2023, the Company entered into a Lease Agreement with American Keg Company to lease 96 kegs. The agreement is for a period of 36 months, with a monthly payment of $502. At the end of the lease the Company will own the kegs with a $1 per keg buyout. The Company recorded ROU assets of $16,326 and lease liabilities of $16,236 in recognition of this lease.
On May 10, 2023, the Company entered into a Lease Agreement with PNC Equipment Finance to lease a 2023 Doosan lift truck. The agreement is for a period of 60 months, with a monthly payment of $250. At the end of the lease the Company will own the equipment with a $1 buyout. The Company recorded ROU assets of $12,705 and lease liabilities of $12,705 in recognition of this lease.
On September 20, 2023, the Company entered into a Lease Agreement with American Keg Company to lease 136 kegs. The agreement is for a period of 36 months, with a monthly payment of $600. At the end of the lease the Company will own the kegs with a $1 per keg buyout. The Company recorded ROU assets of $19,488 and lease liabilities of $19,488 in recognition of this lease.
On January 12, 2024, the Company entered into a Lease Agreement with Blefa Kegs, Inc. to lease 156 kegs. The agreement is for a period of 36 months, with a monthly payment of $690. At the end of the lease the Company will own the kegs with a $1 per keg buyout. The Company recorded ROU assets of $22,423 and lease liabilities of $22,423 in recognition of this lease.
During the three months ended March 31, 2024, the Company depreciated $6,006 of the finance right of use assets.
Finance lease assets and liabilities related to our finance lease are as follows:
| March 31, 2024 | ||||
| Right-of-use assets | $ | |||
| Current finance lease liabilities | ||||
| Non-current finance lease liabilities | ||||
19
The following is a schedule, by years, of future minimum lease payments required under the finance lease:
| Years Ending | ||||
| December 31, | Finance Lease | |||
| 2024 (remaining 9 months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total | ||||
| Less imputed Interest | ( | ) | ||
| Total liability | $ | |||
Other information related to the lease is as follows:
| Lease Type | Weighted Average Remaining Term | Weighted Average Interest Rate | ||
| Finance Lease | 2.68 years | |||
Finance Lease – Related Party
The Company evaluated the leases in accordance with ASC 842 and determined that its leases meet the definition of a finance lease.
On November 6, 2022, the Company entered into a van lease agreement with an employee in the amount of $62,086. The lease has a term of 5 years, from November 2022 to October 2027, with a monthly payment of $1,035. During the three months ended March 31, 2024, the Company depreciated $2,412 of the right of use asset.
Related party finance lease assets and liabilities related to our finance lease are as follows:
| March 31, 2024 | ||||
| Right-of-use assets - related party | $ | |||
| Current finance lease liabilities - related party | ||||
| Non-current finance lease liabilities - related party | ||||
The following is a schedule, by years, of future minimum lease payments required under the related party finance lease:
| Years Ending | Related Party | |||
| December 31, | Finance Lease | |||
| 2024 (remaining 9 months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total | ||||
| Less imputed Interest | ( | ) | ||
| Total liability | $ | |||
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Other information related to the lease is as follows:
| Lease Type | Weighted Average Remaining Term | Weighted Average Interest Rate | ||
| Finance Lease | 3.58 years | |||
8. LOANS PAYABLE
As of March 31, 2024 and December 31, 2023, loans payable was comprised of the following:
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Auto loan | ||||||||
| Promissory notes | ||||||||
| Short term loan | ||||||||
| Total loans payable | $ | $ | ||||||
| Non-current promissory notes | $ | $ | — | |||||
Current
On March 3, 2023, the Company purchased a vehicle and entered into a loan agreement in the amount of $31,694, with an annual interest rate of 13.39%. The loan is for a period of 74 months with a monthly payment of $626. As of March 31, 2024, the balance on the loan is $28,547.
On July 11, 2023, the Company entered into a Promissory Note with Micah Berry in the amount of $150,000. The full balance of this note, including all accrued interest, is due and payable 183 days from the issuance date, and will accumulate interest at a rate of 8% per annum, compounded daily. The note is secured with the issuance of 1,118 shares of Series A Convertible Preferred shares with a stated value of $300,183. The Company will also pay Mr. Berry 2% of net profits generated by the BrewBilt Taproom, for 60 months, commencing upon the first day of Taproom business. Pursuant to the terms of the note, the Taproom reported a net loss in Q1 2024, however the Company accrued royalties of $178 with a corresponding entry to loss on royalties to the statement of operations. During the three months ended March 31, 2024, the company paid $150,000 in principal and $6,861 in accrued interest, and as of March 31, 2024, the note has been fully satisfied.
On October 25, 2023, the Company entered into a Promissory Note with Richard and Catherine Beckley in the amount of $200,000. The full balance of this note, including guaranteed interest of $20,000, is due and payable on October 20, 2024. The note includes the issuance of 745 shares of Series A Convertible Preferred shares with a stated value of $200,033. The Company will also pay 2% of net profits generated by the BrewBilt Taproom, for 60 months, commencing on December 1, 2023. Pursuant to the terms of the note, the Taproom reported a net loss in Q1 2024, however the Company accrued royalties of $178 with a corresponding entry to loss on royalties to the statement of operations. As of March 31, 2024, the note has a principal balance of $200,000 and accrued interest of $20,000.
On October 25, 2023, the Company entered into a Promissory Note with Peter and Kacie Callaham in the amount of $200,000. The full balance of this note, including guaranteed interest of $20,000, is due and payable on October 20, 2024. The note includes the issuance of 745 shares of Series A Convertible Preferred shares with a stated value of $200,033. The Company will also pay 2% of net profits generated by the BrewBilt Taproom, for 60 months, commencing on December 1, 2023. Pursuant to the terms of the note, the Taproom reported a net loss in Q1 2024, however the Company accrued royalties of $178 with a corresponding entry to loss on royalties to the statement of operations. As of March 31, 2024, the note has a principal balance of $200,000 and accrued interest of $20,000.
On February 12, 2024, the Company entered into a Promissory Note with Micah Berry in the amount of $200,000. The full balance of this note, including accrued interest of 8% per annum, is due and payable on February 12, 2025. The note includes the issuance of 1,490 shares of Series A Convertible Preferred shares with a stated value of $400,065. The Company will also pay 2% of net profits generated by the BrewBilt Taproom, for 60 months, commencing on April 1, 2024. As of March 31, 2024, the note has a principal balance of $200,000 and accrued interest of $2,104.
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During the year ended December 31, 2023, Direct Capital Group, Inc. advanced the company $19,000 and the company repaid $9,500. The remaining loan balance due of $9,500 bears no interest and is due on demand.
Non-current
On January 8, 2024, the Company entered into a Promissory Note with Peter and Kacie Callaham in the amount of $200,000. The full balance of this note, including guaranteed interest of $30,000, is due and payable on July 8, 2025. The note includes the issuance of 745 shares of Series A Convertible Preferred shares with a stated value of $200,033. The Company will also pay 2% of net profits generated by the BrewBilt Taproom, for 120 months, commencing on February 1, 2024. Pursuant to the terms of the note, the Taproom reported a net loss in Q1 2024, however the Company issued a royalty payment of $178 to the Callaham’s with a corresponding entry to loss on royalties to the statement of operations. As of March 31, 2024, the note has a principal balance of $200,000 and accrued interest of $30,000.
9. DERIVATIVE LIABILITIES
During the three months ended March 31, 2024, the Company valued the embedded conversion feature of the convertible notes, warrants, certain accounts payable and certain related party liabilities. The fair value was calculated at March 31, 2024 based on the lattice model.
The following table represents the Company’s derivative liability activity for the embedded conversion features for the three months ended March 31, 2024:
| Notes | Warrants | Stock Payable | Total | |||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Initial recognition of derivative liability | — | — | — | — | ||||||||||||
| Derivative settlements | — | — | — | — | ||||||||||||
| Loss (gain) on derivative liability valuation | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
Convertible Notes
The fair value at the commitment date for the convertible notes and the revaluation dates for the Company’s derivative liabilities were based upon the following management assumptions as of March 31, 2024:
| Valuation date | ||
| Expected dividends | ||
| Expected volatility | ||
| Expected term | ||
| Risk free interest |
Warrants
The Company evaluated all outstanding warrants to determine whether these instruments may be tainted. All warrants outstanding were considered tainted. The Company valued the embedded derivatives within the warrants based on the independent report of the valuation specialist.
The fair value at the valuation dates were based upon the following management assumptions:
| Valuation date | ||
| Expected dividends | ||
| Expected volatility | - | |
| Expected term | – | |
| Risk free interest | - |
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Stock Payable
The payables to be issued in stock are at 100% of the lowest closing market price with a 15 day look back. The fair value at the valuation dates were based upon the following management assumptions:
| Valuation date | ||
| Expected dividends | ||
| Expected volatility | ||
| Expected term | ||
| Risk free interest |
10. WARRANTS
Common Stock
A summary of warrant activity for the three months ended March 31, 2024 is as follows:
| Weighted-Average | ||||||||||||||||
| Weighted-Average | Remaining | Aggregate | ||||||||||||||
| Warrants | Shares | Exercise Price | Contractual Term | Intrinsic Value | ||||||||||||
| Outstanding at December 31, 2023 | $ | 3.83 | $ | — | ||||||||||||
| Granted | — | — | — | — | ||||||||||||
| Exercised | — | — | — | — | ||||||||||||
| Forfeited or expired | ( | ) | — | |||||||||||||
| Outstanding at March 31, 2024 | $ | 3.58 | $ | — | ||||||||||||
| Exercisable at March 31, 2024 | $ | 3.58 | $ | — | ||||||||||||
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, 2024.
Convertible Preferred Stock – Related Parties
On June 30, 2023, in connection with a related party senior secured promissory note, the Company granted 2,000 warrants exercisable into an equivalent number of Series A convertible preferred stock at a strike price of $100 with a contractual term of five (5) years. At issuance date, the warrants have an intrinsic value of $337,000, resulting from the difference between the stated price of $268.50 and the strike price of $100.
On July 24, 2023, in connection with a related party senior secured promissory note, the Company granted 1,000 warrants exercisable into an equivalent number of Series A convertible preferred stock at a strike price of $100 with a contractual term of five (5) years. At issuance date, the warrants have an intrinsic value of $168,500, resulting from the difference between the stated price of $268.50 and the strike price of $100.
On July 24, 2023, in connection with a related party senior secured promissory note, the Company granted 1,000 warrants exercisable into an equivalent number of Series A convertible preferred stock at a strike price of $100 with a contractual term of five (5) years. At issuance date, the warrants have an intrinsic value of $168,500, resulting from the difference between the stated price of $268.50 and the strike price of $100.
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11. RELATED PARTY TRANSACTIONS
As of March 31, 2024 and December 31, 2023, related party transactions were comprised of the following:
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets: | ||||||||
| Financial lease assets | $ | $ | ||||||
| Current liabilities: | ||||||||
| Accrued wages | $ | $ | ||||||
| Accrued interest on wages | $ | $ | ||||||
| Current finance lease liabilities | $ | $ | ||||||
| Related party liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Advances | ||||||||
| Note payable interest | ||||||||
| Note payable, net of discount | ||||||||
| Total related party liabilities | $ | $ | ||||||
| Non-current liabilities: | ||||||||
| Financial lease liabilities | $ | $ | ||||||
| Notes payable | $ | $ | ||||||
Financial lease
On November 6, 2022, the Company entered into a van lease agreement with an employee in the amount of $62,086. The lease has a term of 5 years, from November 2022 to October 2027, with a monthly payment of $1,035 (See Note 7).
Officer and Director Agreements
Jef Lewis
On
January 1, 2024, the Company entered into a Directors Agreement with Jef Lewis for a term of one year. Pursuant to the Directors Agreement,
the Company will compensate Mr. Lewis $
Bennett Buchanan
On January 1, 2024, the Company entered into a Directors Agreement with Bennett Buchanan for a term of one year.
Richard Hylen
On January 1, 2024, the Company entered into a Directors Agreement with Richard Hylen for a term of one year.
Sam Berry
On January 1, 2024, the Company entered into a Directors Agreement with Sam Berry for a term of one year.
Adam Eisenburg
On
July 24, 2023, the Company entered into a Directors Agreement with Adam Eisenberg for a term of one year. In exchange for serving in
this capacity, the Company will issue $
Accounts payable
BrewBilt Manufacturing, Inc, which is led by Director Jef Lewis, is supplying all necessary equipment to the company for its craft beer production.
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During the three months ended March 31, 2024 and March 31, 2023, equipment in the amount of $0 and $33,909, respectively, was completed and delivered to the Company. As of March 31, 2024 and December 31, 2023, the Company has an outstanding accounts payable balance to BrewBilt Manufacturing of $68,963 and $99,439, respectively, which has been recorded as related party liabilities on the balance sheet.
All fabricated equipment is non-refundable. Any equipment purchased by BrewBilt Manufacturing on behalf of the company would potentially be refundable based on the individual manufacturers’ return policy.
The Company also recorded $33 for reimbursable expenses, and $712 in payables to related party note holders for royalties they deemed were earned in Q1 2024. Pursuant to the terms of the promissory notes, the Taproom reported a net loss in Q1 2024, and $712 was recorded as a loss on royalties to the statement of operations.
Related party advances and imputed interest
The Company is periodically advanced noninterest bearing operating funds from related parties. The advances are due on demand and unsecured. During the three months ended March 31, 2024, imputed interest of $7,143 was recorded to the statement of operations with a corresponding increase to additional paid in capital. As of March 31, 2024 and December 31, 2023, the Company has an outstanding balance owed to related parties of $191,003 and $191,003, respectively, which has been recorded as related party liabilities on the balance sheet.
Related party notes payable
On June 30, 2023, the Company entered into a senior secured promissory note with Adam Eisenberg in the amount of $200,000. The full balance of this note, including all accrued interest, is due and payable six months from the issuance date, and will accumulate interest at a rate of 8% per annum (increases to 22% in event of default), and is compounded daily. The note is secured with the issuance of 1,490 shares of Series A preferred stock with a stated value of $400,000. The Company recorded a deemed dividend in the amount of $400,000 as the noteholder is a related party. During the three months ended, the Company made a payment of $100,000. As of March 31, 2024, the note has a principal balance of $100,000 and an accrued interest balance of $17,549.
The convertible promissory note also includes the granting of 2,000 warrants convertible into an equivalent number of the Company’s Series A convertible preferred stock, at a strike price of $100 per share, immediately exercisable, with a contractual term of five years.
The Company recorded a total amount of $200,000 as a debt discount to the note for all of the embedded features in the promissory note, which is presented as an offset to the principal balance of the promissory note. As of December 31, 2023, the debt discount has been amortized to the statement of operations.
The Company will also pay Mr. Eisenberg a perpetual royalty fee set at 2% of the net profits generated by the BrewBilt Taproom, commencing on the first day of the Taproom business. The payments will be monthly and due on the first day of the following month. Pursuant to the terms of the note, the Taproom reported a net loss in Q1 2024, however the Company accrued royalties of $178 with a corresponding entry to loss on royalties to the statement of operations.
On July 24, 2023, the Company entered into a senior secured promissory note with Adam Eisenberg in the amount of $100,000. The full balance of this note, including all accrued interest, is due and payable on May 24, 2024, and will accumulate interest at a rate of 8% per annum, compounded daily. The note is secured with the issuance of 745 shares of Series A Convertible Preferred stock with a stated value of $200,032. The Company recorded a deemed dividend in the amount of $200,032 as the noteholder is a related party. As of March 31, 2024, the note has a principal balance of $100,000 and an accrued interest balance of $5,655.
The convertible promissory note also includes the granting of 1,000 warrants convertible into an equivalent number of the Company’s Series A convertible preferred stock, at a strike price of $100 per share, immediately exercisable, with a contractual term of five years.
The Company recorded a total amount of $100,000 as a debt discount to the note for all of the embedded features in the promissory note, which is presented as an offset to the principal balance of the promissory note. As of March 31, 2024, $90,164 of the debt discount has been amortized to the statement of operations.
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The Company will also pay Mr. Eisenberg a perpetual royalty fee set at 1% of the net profits generated by the BrewBilt Taproom, commencing on the first day of the Taproom business. The payments will be monthly and due on the first day of the following month. Pursuant to the terms of the note, the Taproom reported a net loss in Q1 2024, however the Company accrued royalties of $89 with a corresponding entry to loss on royalties to the statement of operations.
On July 24, 2023, the Company entered into a senior secured promissory note with Steven Eisenberg, who is the father of director Adam Eisenberg, in the amount of $100,000. The full balance of this note, including all accrued interest, is due and payable on May 24, 2024, and will accumulate interest at a rate of 8% per annum, compounded daily. The note is secured with the issuance of 745 shares of Series A Convertible Preferred stock with a stated value of $200,032. The Company recorded a deemed dividend in the amount of $200,032 as the noteholder is a related party. As of March 31, 2024, the note has a principal balance of $100,000 and an accrued interest balance of $5,655.
The convertible promissory note also includes the granting of 1,000 warrants convertible into an equivalent number of the Company’s Series A convertible preferred stock, at a strike price of $100 per share, immediately exercisable, with a contractual term of five years.
The Company recorded a total amount of $100,000 as a debt discount to the note for all of the embedded features in the promissory note, which is presented as an offset to the principal balance of the promissory note. As of March 31, 2024, $90,164 of the debt discount has been amortized to the statement of operations.
The Company will also pay Mr. Eisenberg a perpetual royalty fee set at 1% of the net profits generated by the BrewBilt Taproom, commencing on the first day of the Taproom business. The payments will be monthly and due on the first day of the following month. Pursuant to the terms of the note, the Taproom reported a net loss in Q1 2024, however the Company accrued royalties of $89 with a corresponding entry to loss on royalties to the statement of operations.
Non-current related party notes payable and imputed interest
On March 31, 2022, the Company elected not to renew an employee agreement with Mike Schatz and converted accrued wages and interest of $114,355 to an interest free promissory note. This note will be repaid commencing on April 1, 2022, in monthly installments of no less than $2,000 until the principal amount is satisfied and paid in full. During the three months ended March 31, 2024, the Company recorded imputed interest of $3,828, which was recorded to the statement of operations with a corresponding increase to additional paid in capital. The balance at March 31, 2024 is $102,355 and is reported as non-current related party liabilities on the balance sheet.
On October 4, 2022, the Company entered in a Promissory Note with Donna Murtaugh, a former related party that is a holder of Convertible Preferred Series A shares. The shareholder agreed to cancel 3,259 shares of Series A Convertible Preferred stock in exchange for a Promissory Note in the amount of $875,041. The Company agreed to issue 87,504,150 shares of common stock as collateral in the event the note is not paid by the due date of December 31, 2025. During the three months ended March 31, 2024, the Company recorded imputed interest of $32,724 to the statement of operations, with a corresponding increase to additional paid in capital. The balance of the note as of March 31, 2024 is $875,041 and is reported as non-current related party liabilities on the balance sheet.
On December 14, 2023, the Company entered into a Promissory Note with Donna Murtaugh in the amount of $150,000. The full balance of this note, including guaranteed interest of $23,250, is due and payable on June 15, 2025. The note includes the issuance of 745 shares of Series A Convertible Preferred shares with a stated value of $200,033. The Company will also pay 2% of net profits generated by the BrewBilt Taproom, for 120 months, commencing on February 1, 2024. Pursuant to the terms of the note, the Taproom reported a net loss in Q1 2024, however the Company accrued royalties of $178 with a corresponding entry to loss on royalties to the statement of operations. The balance at March 31, 2024 is $150,000 and is reported as non-current related party liabilities on the balance sheet.
On December 27, 2023, the Company entered into a replacement Promissory Note with Bennett Buchanan and Rachel Diamond in the amount of $365,000. The note replaces the promissory notes dated April 14, 2023 for $295,000 and September 20, 2023 for $165,000. The full balance of this note, including guaranteed interest of $68,328, is due and payable on June 27, 2025. The replacement note includes the issuance of 1,614 shares of Series A Convertible Preferred shares with a stated value of $433,359. The balance at March 31, 2024 is $365,000 and is reported as non-current related party liabilities on the balance sheet.
The Company will also pay 2% of net profits generated by the BrewBilt Taproom, for 120 months, commencing on February 1, 2024. In addition, the Company will pay 2% of net profits generated from any future Taproom(s) that the company opens outside of Nevada City, CA. Pursuant to the terms of the note, the Taproom reported a net loss in Q1 2024, however the Company accrued royalties of $178 with a corresponding entry to loss on royalties to the statement of operations.
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12. CONVERTIBLE PREFERRED STOCK
Series A Convertible Preferred Stock
On
January 19, 2024, shares of Convertible Series A shares with a stated value of $
On
February 14, 2024, shares of Convertible Series A shares with a stated value of $
Series A Convertible Preferred Stock – Related Parties
On
January 8, 2024, shares of Convertible Series A shares at $268.50 per share were issued to Bennett Buchanan and Rachel Diamond
in connection with a related party promissory note. The company reclassified $
On
January 15, 2024,
The Series A Convertible Preferred Stock has been classified outside of permanent equity and liabilities since it embodies a conditional obligation that the Company may settle by issuing a variable number of equity shares and the monetary value of the obligation is based on a fixed monetary amount known at inception. Each share of the Convertible Series A Preferred Stock has a fixed value of $268.50 per share, has no voting rights, and is convertible into common stock at closing market price on the date of conversion. The Company has recorded $16,438,913 which represents 61,225 Series A Convertible Preferred Stock at $268.50 per share, issued and outstanding as of March 31, 2024, outside of permanent equity and liabilities.
Convertible Preferred Stock Payable
On December 27, 2023, the company agreed to issue $433,359 of Convertible Series A shares to Bennett Buchanan and Rachel Diamond in connection with a promissory note. On January 8, 2024, the company issued 1,614 shares at $268.50 per share and reclassified preferred stock payable of $433,359 to Series A Convertible Preferred Stock.
Convertible Preferred Stock Receivable
On September 23, 2023, 373 Series A Convertible Preferred shares were issued to Bennett Buchanan with a stated value of $100,151 in connection with a promissory note. On December 27, 2023, the promissory note was cancelled and replaced with a new promissory note. Pursuant to the terms, the 373 shares of Series A Convertible stock will be retired. The shares were retired on January 15, 2024 and the company reclassified preferred shares receivable of $100,151 to Series A Convertible Preferred Stock.
13. PREFERRED STOCK
On January 25, 2011, the Company filed an amendment to its Nevada Certificate of Designation to create Series B Preferred Stock, with a par value of $ and shares authorized.
On
July 1, 2015, the Company’s Board of Directors authorized the creation of shares of Series B Voting Preferred Stock and on July
27, 2015 a Certificate of Designation was filed with the Nevada Secretary of State. The holder of the shares of the Series B Voting Preferred
Stock has the right to vote those shares of the Series B Voting Preferred Stock regarding any matter or action that is required to be
submitted to the shareholders of the Company for approval.
On November 9, 2018, newly appointed President, Richard Hylen was issued Preferred Series B Control Shares, pursuant to his employee agreement dated November 1, 2018.
27
On January 20, 2021, newly appointed President, Jef Lewis and Satel’s President Richard Hylen were each issued Preferred Series B Control Shares each, pursuant to their employee agreements dated January 1, 2021. The Company determined the Control shares have a value of $785,230 which was recorded as stock-based compensation on the statement of operations and an offsetting entry to additional paid in capital.
On June 11, 2021, the Company filed a Certificate of Amendment with the Florida Secretary of State to decrease the number of authorized Preferred Series B from to with a par value of $.
On July 1, 2022, the Company cancelled Preferred Series B Control shares held by Richard Hylen in connection with the sale of the company’s wholly owned subsidiary, Satel Inc.
Pursuant to an Employee Agreement dated September 5, 2023, 500 Preferred Series B Control shares will be transferred from former CEO Jef Lewis to newly appointed CEO Bennett Buchanan. The shares were transferred on October 26, 2023.
As of March 31, 2024, Series B Preferred shares were authorized, of which shares were issued and outstanding.
14. COMMON STOCK
As of March 31, 2024, common shares, par value $, were authorized, of which shares were issued and outstanding.
15. INCOME TAXES
Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statements 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, 2024:
| March 31, 2024 | ||||
| Net tax loss carry-forwards | $ | |||
| Statutory rate | % | |||
| Expected tax recovery | ||||
| Change in valuation allowance | ( | ) | ||
| Income tax provision | $ | — | ||
| Components of deferred tax asset: | ||||
| Noncapital tax loss carry-forwards | $ | |||
| Less: valuation allowance | ( | ) | ||
| Net deferred tax asset | $ | — | ||
As of the date of this filing, the Company is not current in filing their tax returns. The last return filed by the Company was December 31, 2017, and the Company has not accrued any potential penalties or interest from that period forward. The Company will need to file returns for the year ending December 31, 2018, 2019, 2020, 2021, 2022 and 2023 which are still open for examination.
16. COMMITMENTS AND CONTINGENCIES
Distribution and Licensing Agreements
On November 1, 2021, the Company entered into a Distribution Agreement with South Pacific Traders Oy for the exclusive right to distribute the company’s products in the European Community and the United Kingdom. The term of the agreement is for a period of five years.
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On November 1, 2021, the Company entered into an IP Purchase and License Agreement with Maguire & Associates LLC to provide for the marketing of products and services into the European Community based on the inventions of the IP/License Rights to develop and commercialize for the sole benefit BrewBilt Brewing. The agreement is for a period of five years. Pursuant to the agreement, the Company has issued 18,622 Series A shares valued at $5,000,000.
On November 30, 2023, the Company entered into a Distribution Agreement with Mussetter Distribution to distribute the company’s beer products. The agreement will remain in effect until terminated by either party.
Hops Agreement
On October 4, 2023, the company entered into an agreement with Hollingbery & Son, Inc. for the purchase of hops in the amount of $31,765. A deposit of 10% is due at harvest and the remaining balance within 30 days of delivery of the product.
Director Agreements
On January 1, 2024, the Company entered into a Directors Agreement with Jef Lewis for a term of one year. Pursuant to the Directors Agreement, the Company will compensate Mr. Lewis $36,000 per annum, payable monthly.
On January 1, 2024, the Company entered into a Directors Agreement with Bennett Buchanan for a term of one year.
On January 1, 2024, the Company entered into a Directors Agreement with Richard Hylen for a term of one year.
On January 1, 2024, the Company entered into a Directors Agreement with Sam Berry for a term of one year.
Leases
On August 1, 2021, the company entered into a commercial lease for approximately 6,547 square feet of space, located in the Wolf Creek Industrial Building at 110 Spring Hill Dr, Grass Valley, CA 95945. The lease has a term of five years, from August 1, 2021 through July 31, 2026, with a monthly rent of $4,000.
On August 26, 2022, the company entered into a commercial lease with 4-Corners LLC to establish a Tap Room as part of its brewery revenue. The space is located at 300 Spring St, Nevada City, NV 95959, and the lease has a term of five years, from September 1, 2022 through August 31, 2027. The rent is $3,000 per month from September 1, 2022 through December 31, 2022, $3,500 per month from January 1, 2023 through August 31, 2023, $3,800 per month from September 1, 2023 through August 31, 2024, $4,400 per month from September 1, 2024 through August 31, 2025, $4,700 per month from September 1, 2025 through August 31, 2026, and $4,914 per month from September 1, 2026 through August 31, 2027.
On November 6, 2022, the Company entered into a van lease agreement with an employee in the amount of $62,086. The lease has a term of 5 years, from November 2022 to October 2027, with a monthly payment of $1,035.
On February 22, 2023, the Company entered into a Lease Agreement with American Keg Company to lease 132 kegs. The agreement is for a period of 36 months, with a monthly payment of $592. At the end of the lease the Company will own the kegs with a $1 per key buyout.
On April 26, 2023, the Company entered into a Lease Agreement with American Keg Company to lease 96 kegs. The agreement is for a period of 36 months, with a monthly payment of $502. At the end of the lease the Company will own the kegs with a $1 per key buyout.
On May 10, 2023, the Company entered into a Lease Agreement with PNC Equipment Finance to lease a 2023 Doosan lift truck. The agreement is for a period of 60 months, with a monthly payment of $250. At the end of the lease the Company will own the equipment with a $1 buyout.
On September 20, 2023, the Company entered into a Lease Agreement with American Keg Company to lease 136 kegs. The agreement is for a period of 36 months, with a monthly payment of $600. At the end of the lease the Company will own the kegs with a $1 per key buyout.
On January 12, 2024, the Company entered into a Lease Agreement with Blefa Kegs, Inc. to lease 156 kegs. The agreement is for a period of 36 months, with a monthly payment of $690. At the end of the lease the Company will own the kegs with a $1 per keg buyout.
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17. SUBSEQUENT EVENTS
Officer and Director Resignation
On April 22, 2024, the Company accepted the resignation of Sam Berry as a director and the Chief Operating Officer of the Company.
Promissory Notes – Related Party
On April 11, 2024, the Company entered into a Promissory Note with Bennett Buchanan in the amount of $65,000. The full balance of this note, including guaranteed interest of $6,500, is due and payable on April 10, 2025. The note includes the issuance of 298 shares of Series A Convertible Preferred shares with a stated value of $80,013. The Company will also pay 1% of net profits generated by the BrewBilt Taproom, for 120 months, commencing on May 1, 2024.
Subsequent Stock Issuances
On April 12, 2024, 298 shares of Convertible Series A shares at $268.50 per share were issued to Bennett Buchanan in connection with a related party promissory note.
The Company has evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no additional subsequent events to disclose.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2024 Compared with the Three Months Ended March 31, 2023
Revenues:
The Company’s revenues were $341,256 for the three months ended March 31, 2024 compared to $76,856 for the three months ended March 31, 2023. Revenues in Q1 2024 comprised of $122,532 in beer sales, $217,815 in taproom sales and $909 in merchandise sales. The primary increase was due to sales from the taproom which opened in December 2023. In addition, in Q1 2024, can sales increased 49% and keg sales increased 69% compared to Q1 2023. The increase in revenue is due to customer expansion through advertising and additional distribution options.
Cost of Sales:
The Company’s cost of sales was $235,406 for the three months ended March 31, 2024, compared to $106,360 for the three months ended March 31, 2023. Cost of sales in 2023 included raw materials, beer packaging, selling expenses, depreciation of the brewing equipment, direct labor expenses, overhead expenses and food and beverage costs for the taproom. The average cost per barrel was $138 for the three months ended March 31, 2024 compared to $148 for the three months ended March 31, 2023. The cost per barrel in Q1 2024 decreased due to an increase in beer production which has resulted in volume discounts on packaging and materials. In addition, there are costs that remain constant regardless of the amount of beer that is produced, such as rent, depreciation and direct labor.
Operating Expenses:
Operating expenses consisted primarily of consulting fees, professional fees, salaries, and wages, share based compensation, office expenses and fees associated with preparing reports and SEC filings relating to being a public company. Operating expenses for the three months ended March 31, 2024 and March 31, 2023, were $451,425 and $1,187,559, respectively. Although there was an increase in depreciation expense and G&A expenses in Q1 2024, there was a decrease in wages due to share based compensation in connection with directors’ agreements issued in Q1 2023.
Other Income (Expense):
Other income (expense) for the three months ended March 31, 2024 and March 31, 2023 was $409,462 and $(1,499,769), respectively. Other expense consisted of derivative valuation gains and losses, gains or losses on settlement of debt and conversion of debt, and interest expense. The gain or loss on derivative valuation is directly attributable to the change in fair value of the derivative liability. Interest expense is primarily attributable to interest and penalties on outstanding notes payable, the initial interest expense associated with the valuation of derivative instruments at issuance, and the accretion of the convertible debentures over their respective terms. The variance is due to losses on conversion of debt of $1,906,732 and an increase in amortization of debt discounts during the three months ended March 31, 2023.
Net Profit (Loss):
Net profit (loss) for the three months ended March 31, 2024 was $63,887 compared to $(2,716,832) for the three months ended March 31, 2023. The increase in profit in Q1 2024 can be explained by the increase in gross profit, a decrease in share-based compensation, and a decrease in other expenses.
Impact of Inflation
We believe that the rate of inflation has had a negligible effect on our operations.
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Liquidity and Capital Resources
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Current Assets | $ | 140,705 | $ | 208,070 | ||||
| Current Liabilities | 16,991,372 | 17,419,790 | ||||||
| Working Capital (Deficit) | $ | (16,850,667 | ) | $ | (17,211,720 | ) | ||
The overall working capital deficit decreased from $17,211,720 at December 31, 2023 to $16,850,667 at March 31, 2024 due to a decrease in derivative liabilities, accrued expenses and related party liabilities.
| March 31, | March 31, | |||||||
| 2024 | 2023 | |||||||
| Cash Flows (used in) provided by Operating Activities | (224,562 | ) | (131,309 | ) | ||||
| Cash Flows (used in) provided by Investing Activities | (9,081 | ) | (10,632 | ) | ||||
| Cash Flows (used in) provided by Financing Activities | 141,336 | 114,739 | ||||||
| Net Increase (decrease) in Cash During Period | (92,307 | ) | (27,202 | ) | ||||
During the three months ended March 31, 2024 cash used in operating activities was $224,562 compared to $131,309 for the three months ended March 31, 2023. In Q1 2024, the company had increases in accrued interest and accounts payable and decreases in share-based compensation and losses on conversion of debt compared to Q1 2023.
During the three months ended March 31, 2024 cash used in investing activities was $9,081 compared to $10,632 for the three months ended March 31, 2023. The additions in Q1 2024 and Q1 2023 were leaseholder improvements for the taproom.
During the three months ended March 31, 2024, cash provided by financing activities was $141,336 compared to $114,739, for the three months ended March 31, 2023. The increase in cash provided by financing activity primarily resulted from an increase in proceeds from promissory notes during the three months ended March 31, 2024.
As of March 31, 2024, the Company had a cash balance and current asset total of $22,195 and $140,705 respectively, compared with $114,502 and $208,070 of cash and current assets, respectively, as of December 31, 2023. The decrease in assets was due to an increase in cash expenditures for the taproom which opened in December 2023.
As of March 31, 2024, the Company had total current liabilities of $16,991,372 compared with $17,419,790 as of December 31, 2023. The decrease in current liabilities was primarily attributed to a decrease in derivative liabilities and related party liabilities.
Going Concern
The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. Since its inception, the Company has been funded by related parties through capital investment and borrowing funds.
As of March 31, 2024 we have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our December 31, 2023 audited financial statements that they have substantial doubt that we will be able to continue as a going concern.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuance of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.
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Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a non-accelerated filer and a smaller reporting company, as defined in Rule 12b-2 of the of the Securities Exchange Act of 1934, and as such, are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our Company’s officers, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our Company’s officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2024. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses in our internal control over financial reporting identified in our Annual Report on Form 10-K for the year ended December 31, 2023, that was filed with the SEC on April 5, 2024, the Company’s officers concluded that our disclosure controls and procedures are ineffective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act, during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was served a complaint in the County of Nevada, State of California (Case No. CU0000567). BrewBilt Brewing Co. is listed as a named defendant in this matter. The complaint involves the termination of employee Branford Samuels who was employed as a fabricator for BrewBilt Manufacturing Inc. and, it is not uncommon for named defendants in a civil matter to be listed, but never served the complaint, and eventually they are dismissed from the matter without further steps being taken by a plaintiff(s). California Rules of Court rule 3.110(b) states in relevant part that, “[t]he complaint must be served on all named defendants and proofs of service on those defendants must be filed with the court within 60 days of filing of the complaint.” The subject complaint was filed by plaintiff on February 7, 2023. Therefore, at this time it is speculative whether BrewBilt Brewing Co. has any threat of material litigation or pending material litigation. To the extent that one considers being a named defendant of a complaint as a threatened or pending matter, we have not devoted substantial attention to this matter, and do not anticipate doing so in the future with the facts known to us. Although though the underlying events giving rising to the claim/cause of action occurred prior to the date of December 31, 2022, at this time, it is our current opinion that there are no unasserted possible claims or assessments of such that are probable as it relates to BrewBilt Brewing Co. In other words, with facts known to us at this time, we opine that it is not “probable” (Standard 8(a)) that there are assertable legal claims against BrewBilt Brewing Co. that must be disclosed in accordance with Statement of Financial Accounting Standards No. 5 as they do not also likely satisfy Standard 8(b): “The amount of loss can be reasonably estimated.”
ITEM 1A. RISK FACTORS
A smaller reporting company is not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| Exhibit Number |
Description | |
| 31.1 | Certification of the Chief Executive Officer required under Rule 13a-14(a)/15d-14(a) of the Exchange Act* | |
| 31.2 | Certification of the Chief Financial Officer required under Rule 13a-14(a)/15d-14(a) of the Exchange Act* | |
| 32.1 | Certification of the Chief Executive Officer and Chief Financial Officer required under Section 1350 of the Exchange Act* | |
| 101.INS | XBRL Instance Document* | |
| 101.SCH | XBRL Taxonomy Extension Schema* | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase* | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase* | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase* | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase* |
| * | Filed herewith |
Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Dated: May 15, 2024
| /s/ Bennett Buchanan | ||
| By: Bennett Buchanan | ||
| Its: President, Chief Executive Officer | ||
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