FORWARD LOOKING STATEMENTS

This report contains forward-looking statements that involve risk and uncertainties. We use words such as "anticipate," "believe," "plan," "expect," "future," "intend," and similar expressions to identify such forward-looking statements. Investors should be aware that all forward-looking statements contained within this filing are good faith estimates of management as of the date of this filing and actual results may differ materially from historical results or our predictions of future results.

General Financial Matters

Our auditor's report on our financial statements for the year ended December 31, 2019 contained a going concern qualification as there is substantial doubt about our ability to continue as a going concern. Our liabilities significantly exceed our assets and we have yet to generate revenue from operations. Our primary creditor has claimed a default under the Promissory Note we issued to such creditor. For us to continue to achieve our business plan we need to raise significant additional capital of which there can be no assurance. An investment in the Company would create a significant risk of loss to an investor.





Overview

Spirits Time International, Inc. (the "Company") was incorporated on October 18, 2005 under the laws of the State of Nevada. The Company was formed under the name of Sears Oil and Gas Corporation but effective October 22, 2018, our name was changed to Spirits Time International, Inc. to reflect our new business direction.

At the time the Company was organized, its principal business objective was to engage in the oil and gas business. The Company became a public reporting company by filing a Form S-1 Registration Statement with the SEC that was declared effective July 25, 2008. The Company's business operations in the oil and gas business were not successful and its initial principals sold controlling interest in the Company. Prior to the Asset Acquisition (as defined below), we were a "shell company" (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended). As a result of the Asset Acquisition, we ceased to be a "shell company" and intend to commence operations in the beverage industry (initially in the tequila beverage industry).

We have limited operating history, no revenue, and negative working capital.

On September 28, 2018, we completed and closed upon an Asset Acquisition Transaction (the "Acquisition") and a Loan Transaction pursuant to which we intend to engage in the business of marketing tequila products under the brand name of Tequila Alebrijes. We acquired the Tequila Alebrijes brand name, trademark and certain other assets from Human Brands International, Inc., a Nevada corporation ("Human Brands"). We also closed on a loan transaction whereby we borrowed $300,000 from Auctus Fund, LLC (See Notes to the Financial Statements). Auctus has delivered a notice of default to us relating to such loan. See Part II - Item 3 of this Form 10-Q.

We issued 3,500,000 shares of our common stock valued at $375,000 to Human Brands, and paid Human Brands $50,000 for the brand name, trademark and other acquired assets, for total purchase price of $425,000. As a result of such asset acquisition, on the acquisition date Human Brands owned approximately 52.4 % of our then-issued and outstanding shares of common stock. So as not to effect a change in control, Human Brands granted our President, Mark Scharmann, an Irrevocable Proxy to vote 300,000 of its shares of our common stock. We have since issued additional shares of our common stock to other individuals and HBI has transferred 296,154 of its shares to another shareholder, thereby reducing HBI's ownership percentage to 44% (3,203,846 shares) as of the date of this filing. As such, on May 24, 2019 the Company and proxy holder Mark Scharmann terminated the proxy and such proxy is of no further force or effect. HBI has full voting rights as to the 300,000 shares described in the proxy. We anticipate that Human Brands' percentage ownership of the Company will decrease as we issue additional shares in the future to raise additional capital and to effect acquisitions and business partnerships.

We did not acquire any ongoing operation of or substantive processes from Human Brands. We did not merge with or acquire an equity interest in Human Brands.

We made no changes in our officers or directors. No officer, director or employee of Human Brands is an officer or director of the Company. We did not change our accounting firm or our transfer agent as a result of the completion of the Asset Acquisition. We did not hire any employees of Human Brands. The transaction was essentially the acquisition of certain rights to distribute, rights to use a brand and a limited amount of inventory. Human Brands is involved in the marketing of other beverage products and brands in which we have no ownership or other interest. As such, the transaction was deemed an asset purchase, with the acquired assets recorded at their fair market value on the acquisition date.


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We intend to look for other beverage brand acquisition transactions in the future.





Plan of Operations

Prior to the Asset Acquisition transaction, we were a shell company with no substantive operations. The purpose of the Company was to seek and investigate potential assets, properties or businesses to acquire while complying with the periodic reporting requirements of the Exchange Act for so long as we are subject to those requirements.

We have developed a business plan to obtain rights to develop a portfolio of beverage (alcoholic and non-alcoholic) product brands and to distribute and market beverage products nationally and internationally. Our first brand is the "Tequila Alebrijes" brand of tequila. We obtained the trademark for this brand and the rights to market and distribute Tequila Alebrijes products. We also acquired approximately 12,000 bottles of tequila valued at $150,000, of which approximately 6,500 valued at approximately $80,000 are on-hand as further described below. The remaining 5,500 were never delivered to us, resulting in the write-off of inventory of $69,530 during the year ended December 31, 2019. Currently, the "Tequila Alebrijes" brand of tequila is our only product brand.

We do not intend to produce beverage products but rather we intend to acquire brand and marketing rights for beverage products and thereafter commercialize our products either directly by selling to retailers and point of sale locations or through brand management agreements and/or distribution agreements with other companies involved in the beverage distribution business.





Acquisition of Assets

On September 13, 2018 we entered into an Asset Purchase Agreement to purchase assets from Human Brands, as described above.

The Company's Business Plan - General

Our new business plan is to engage in the business of acquiring rights to market non-alcoholic and alcoholic beverage brands. As described above, our first acquisition was the Tequila Alebrijes brand of tequila. Currently, that is our only product brand.

Demand for premium distilled spirits brands is driving growth and transforming the distilled spirits industry, driven by several key trends including an increasingly global market for alcoholic beverages, better and more well-defined channels of distribution, an international and domestic rise of cocktail culture, the growing popularity for distilled spirits, a greater desire among consumers wanting to know more about the history and production methods behind what they drink, an increase in the willingness of consumers to enjoy experimenting and trying new brands, categories and styles of alcoholic beverages, the identifiable industry trend showing increasing demand for a broader variety and new brands at the point of sale, and a higher level of appreciation of quality over quantity, with premium and above offerings gaining market share.

Amidst the background where industry leading producers are shifting more emphasis on premium brand offerings, an emerging wave of small craft distillers is capturing an increasing market share. As the craft boom continues, we anticipate that larger brands will increase their emphasis on craft qualities and will look to emerging brands gaining consumer support as acquisition candidates.

We intend, subject to adequate financing, to build a portfolio of beverage brands of non-alcoholic and alcoholic beverages. We anticipate that we may be able to use our securities to acquire interests in additional beverage brands and as incentive for brand managers and other product distributors.

We entered into a non-exclusive brand management agreement with CapCity Beverage, LLC ("CCB"). CCB is an affiliate of Human Brands which has been active in developing, distributing and promoting premium spirits brands since 2012. The brand management agreement calls for CCB to utilize its import and export licenses to bring the Tequila Alebrijes inventory into the U.S. from Mexico and also ship the product to other countries around the world.

As of March 31, 2020, the brand management agreement has not resulted in the sale of any of our product and we anticipate that we will either terminate or modify the agreement and seek other product market alternatives.





Ultimate Business Goal

One of our ultimate business goals is to develop critical mass and a diverse portfolio of distilled spirits and non-alcoholic brands to make us an attractive acquisition target or an attractive partner for other companies in the beverage industry.


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To achieve this goal, we plan on developing diverse channels of distribution by building relationships with strong regional and local distributors. To support our distributors, we plan to work with brand managers to create marketing, support consumer awareness, and to develop demand at the retail level in liquor stores and bars.

Our planned operating strategy.

Our business strategy relates to our Tequila Alebrijes product and potentially other distilled spirits brands and non-alcoholic brands. We have developed a strategy to commence and build operations in the premium spirits industry. Our strategy is as follows:





(1)               Building Our Branded Product Portfolio.  We plan to build a

portfolio of distilled spirit and non-alcoholic brands through distribution agreements, acquisitions of distributors and brands, and potentially the development of our own proprietary brands. We intend to attempt to add products in high-demand and in high-growth categories. Our first brand acquisition, as described throughout this Form 10-Q, is the acquisition of the Tequila Alebrijes brand.





(2)             Qualify for Our Own Licenses and Permits. Initially we are

relying on "Brand Management Agreements" with companies that already have distribution channels and have import and export licenses and permits. In addition, we will be contracting with US domestic distributors that have permits and licenses in a large number of key states for spirits sales. In addition, our Brand Management companies will have the logistical capability to store, ship and comply with all state and federal regulations and accounting requirements.

The Brand Manager will also be responsible for collecting and reporting on all taxes, customs compliance and shipping regulations. Presently, our non-exclusive Brand Manager for our Tequila Alebrijes brand is CCB. The CCB Brand Management Agreement is further discussed below.





(3)              Build Distribution.  If, in the future, we obtain required

permits, we intend to focus on building additional distribution for Tequila Alebrijes and other brands in the U.S. and Asia, the largest beverage market and the fastest growing beverage market, respectively.





(4)             Marketing.  We plan to bring the enjoyment of the Tequila

Alebrijes experience to the customer. Key to scaling our business activities is our commitment to, and investment in innovative and effective sales and marketing campaigns, and supporting demand generated from those campaigns with sufficient inventory. Consumers want an experience and our marketing strategy is built around that.

Our first proprietary brand, Tequila Alebrijes, is a premium tequila. Our Tequila Alebrijes product is expected to be shipped to the Brand Manager as needed for distribution.

In addition to CCB, we are discussing potential product distribution relationships with other participants in the beverage distribution industry.

We anticipate that in order to achieve our marketing strategy for our Tequila Alebrijes brand and acquire and market other brands, we will be required to obtain significant capital from equity and debt sources. There can be no assurance that we will be able to obtain adequate additional capital as we need it or even if it is available, that it will be on terms and conditions that are acceptable and commercially reasonable. We anticipate that we will issue shares of our capital stock to raise additional capital, to attract third party distribution networks, attempt to acquire interests in other brands and for employee compensation.





Results of Operations

As the result of the acquisition of the Tequila Alebrijes assets and a change of our business direction, our future operations will be completely different than our historical lack of operations and financial position. Accordingly, the historical disclosure in this Section is not an appropriate indication of our future results of operations disclosure.

We have yet to generate any revenue from the acquisition of the tequila related assets and there can be no assurance we will be able to generate meaningful revenues in the near future. We anticipate that we must raise additional capital to develop a meaningful marketing program for our products and there can be no assurance that we will be able to raise adequate capital to market our products and develop active business operations.

Three months ended March 31, 2020 compared to the three months ended March 31, 2019

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For the three months ended March 31, 2020 and 2019, the Company had no revenue.

For the three months ended March 31, 2020, the Company incurred $13,347 of professional fees compared to $23,089 for the three months ended March 31, 2019.

Such expenses consist primarily of legal and accounting fees, as well as annual fees required to maintain the Company's corporate status. The decrease is due primarily to legal and accounting fees incurred during the three months ended March 31, 2019 related to the Asset Acquisition. For the three months ended March 31, 2020, the Company incurred $1,857 of selling, general and administrative expenses compared to $12,894 for the three months ended March 31, 2019. The decrease is due primarily to marketing and travel fees incurred during the three months ended March 31, 2019 related to the Asset Acquisition.

For the three months ended March 31, 2020, the Company incurred $31,037 of interest expense on notes payable compared to $20,680 for the three months ended March 31, 2019.

As a result of the foregoing, the Company incurred a loss of $46,241 and $56,663, respectively, for the three months ended March 31, 2020 and 2019.





Liquidity

As the result of the acquisition of the Tequila Alebrijes assets and a change of our business direction, our future operations, liquidity and financial position will be completely different than our historical lack of operations, liquidity and financial position. Accordingly, the historical disclosure in this Section is not an appropriate indication of our future liquidity and financial position disclosure.

As of March 31, 2020, the Company had $2,576 of cash and negative working capital of $695,858. This compares with cash of $163 and negative working capital of $649,617 as of December 31, 2019.

For the three months ended March 31, 2020, the Company used cash of $4,887 in operations consisting of the loss of $46,241 which was offset by changes in accounts payable and accrued interest of $35,319 and changes in accrued interest due to related parties of $6,035. This compares with $32,209 used in operations for the three months ended March 31, 2019 consisting of the loss of $56,663 which was offset by the amortization of debt discounts of $5,937, changes in accounts payable and accrued interest of $13,295 and changes in accrued interest due to related parties of $5,222.

There were no investing activities during the three months ended March 31, 2020 and 2019.

For the three months ended March 31, 2020, financing activities provided $7,300 which consisted of proceeds from loans payable to related parties. There were no financing activities during the three months ended March 31, 2019.

As a result of the foregoing, there was an increase in cash of $2,413 for the three months ended March 31, 2020 from the cash on hand as of December 31, 2019.

From the date of inception (October 18, 2005) to March 31, 2020, the Company has recorded an accumulated deficit of $1,370,274, most of which were expenses relating to the initial development of the Company and maintaining reporting company status with the SEC over the past 10 years. In order to survive as a going concern, the Company will require additional capital investments or borrowed funds to meet cash flow projections and carry forward our business objectives. There can be no guarantee or assurance that we can raise adequate capital from outside sources to fund the proposed business. Failure to secure additional financing would result in business failure and a complete loss of any investment made into the Company.

Our ability to continue as a going concern in the next 12 months depends on our ability to obtain sources of capital to fund our continuing operations and to fund our operations in the beverage industry. As of March 31, 2020, our remaining cash balance is not sufficient to cover our current liabilities, obligations and working capital needs for the balance of 2020. We will continue to rely on loans from management and/or affiliated shareholders or we may raise additional capital through an interim financing to meet our general cash flow requirements until such time as we are able to complete the acquisition of an operating company.

In September 2018, we obtained funds from the issuance of a Secured Promissory Note that is described above. Our net proceeds from that transaction have been used to repay outstanding debt, to fund the professional fees in connection with such transaction and the Asset Acquisition Transaction, for use in our beverage operations and for working capital. We anticipate that we will attempt to raise additional capital from the sale of our securities during the next two quarters to fund or operations. There are no assurances, however, that we will be able raise the necessary additional capital to fund our operations in the beverage industry.

As described in Part II Item 3, the lender under the Secured Promissory Note has notified us of a claimed default under the Note. The Note is secured by all of the assets of the Company. We currently do not have cash available to repay the Note and there is no assurance that we will ever have liquid assets necessary to repay the Note.


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Employees

As of the date of this report, we have no employees. We currently rely on related parties such as our non-exclusive Brand Manager, CCB, and third parties such as CCB's subcontractor, Tequila Armero. Subject to adequate financing and business needs we will retain employees, third party consultants, agents and other service providers on an as needed basis.

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet arrangements that had or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

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