Notes to Financial Statements
Note 1. Business, Organization, and Liquidity
Business and Organization
Bergio International, Inc. (the Company) was incorporated in the State of Delaware on July 24, 2007 under the name Alba Mineral Exploration, Inc. On October 21, 2009, as a result of a Share Exchange Agreement, the corporate name was changed to Bergio International, Inc. and the Company implemented a 12-for-1 forward stock split of its common shares. All share and per share data has been adjusted to reflect such stock splits. Effective July 15, 2013, the Company amended its Certificate of Incorporation to change the Companys authorized capital from 1,500,000,000 common shares to 3,000,000,000 common shares of stock. On February 26, 2014, the Company filed a certificate of amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the number of authorized shares of capital stock of the Company to 6,000,000,000 shares from 3,000,000,000 shares. The Company is engaged in the product design, manufacturing, distribution of fine jewelry primarily in the United States and is headquartered in Fairfield, New Jersey. The Company also markets its fine jewelry in Russia. The Company experiences significant seasonal volatility. The first two quarters of the year typically represent 15% - 35% of annual sales, and the remaining two quarters represent the remaining portion of annual sales.
Note 2. Summary of Significant Accounting Policies
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Risks and Uncertainties:
The Companys operations are subject to a number of risks, including but not limited to changes in the general economy, demand for the Companys products, and the success of its customers.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications have had no effect on the financial position, operations or cash flows for the year ended December 31, 2013.
Revenue Recognition:
Revenues are recognized at the time of shipment to with the price to the buyer being fixed and determinable and collectability assured, provided title and risk of loss is transferred to the customer. Provisions, when appropriate, are made where the right to return exists.
Shipping and handling costs charged to customers are classified as sales, and the shipping and handling costs incurred are included in cost of sales.
Fair Value of Financial Instruments:
The Company estimates that the fair value of all financial instruments at December 31, 2013 and, 2012, as defined in Financial Accounting Standards Board (FASB) ASC 825 Financial Instruments, does not differ materially, except for the items discussed below, from the aggregate carrying values of its financial instruments recorded in the accompanying consolidated balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value.
The carrying amounts reported in the balance sheets as of December 31, 2013 and 2012 for cash, accounts receivable and accounts payable approximate the fair value because of the immediate or short-term maturity of these financial instruments. Each reporting period we evaluate market conditions including available interest rates, credit spreads relative to our credit rating and liquidity in estimating the fair value of our debt. After considering such market conditions, we estimate that the fair value of debt approximates its carrying value.
F-6
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
Accounting for Income Taxes:
The Company accounts for income taxes using the asset and liability method described in FASB ASC 740, Income Taxes. Deferred tax assets arise from a variety of sources, the most significant being: a) tax losses that can be carried forward to be utilized against profits in future years; b) expenses recognized for financial reporting purposes but disallowed in the tax return until the associated cash flow occurs; and c) valuation changes of assets which need to be tax effected for book purposes but are deductible only when the valuation change is realized.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when such differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefit which is not more likely than not to be realized. In assessing the need for a valuation allowance, future taxable income is estimated, considering the realization of tax loss carryforwards. Valuation allowances related to deferred tax assets can also be affected by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event it was determined that the Company would not be able to realize all or a portion of our deferred tax assets in the future, we would reduce such amounts through a charge to income in the period in which that determination is made. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made.
Income Tax Uncertainties:
The Company accounts for uncertainties in income taxes under ASC 740-10-50 which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 requires that the Company determine whether the benefits of its tax positions are more-likely-than-not of being sustained upon audit based on the technical merits of the tax position. The Company recognizes the impact of an uncertain income tax position taken on its income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. The implementation of ASC 740-10 had no impact on the Companys results of operations or financial position.
Despite the Companys belief that its tax return positions are consistent with applicable tax laws, one or more positions may be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation.
Interest and penalties related to income tax matters, if applicable, will be recognized as income tax expense. During the years ended December 31, 2013 and 2012, the Company did not incur any expense related to interest or penalties for income tax matters, and no such amounts were accrued as of December 31, 2013 and 2012.
Cash and Cash Equivalents:
Cash equivalents are comprised of certain highly liquid instruments with a maturity of three months or less when purchased. The Company did not have any cash equivalents on hand at December 31, 2013 and December 31, 2012.
Accounts Receivable:
Accounts receivable are generated from sales of fine jewelry to retail outlets throughout the United States and Russia. At December 31, 2013 and December 31, 2012, accounts receivable were substantially comprised of balances due from retailers and from the Russian manufacturer of the jewelry that we sell to our customers in Russia. .
The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on customer payment and current credit worthiness, as determined by review of their current credit information. The Company continuously monitors credit limits for and payments from its customers and maintains provision for estimated credit losses based on its historical experience and any specific customer issues that have been identified. While such credit losses have historically been within the Companys expectation and the provision established, the Company cannot guarantee that this will continue.
An allowance for doubtful accounts is provided against accounts receivable for amounts management believes may be uncollectible. The Company determines the adequacy of this allowance by regularly reviewing the composition of its accounts receivable aging and evaluating individual customer receivables, considering the customers financial condition, credit history and current economic circumstance. The Company historically has been able to collect the accounts receivable balance during a period of nine months to a year. While credit losses have historically been within the Companys expectation and the provision established, the Company cannot guarantee that this will continue. As of December 31, 2013 and 2012, the allowance for doubtful accounts was $305,980 and $-0-, respectively. An officer of the Company has personally guaranteed a customer account receivable balance of $70,926.
F-7
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
Concentrations of Credit Risk:
Cash Held in Banks:
The Company maintains cash balances at a financial institution that is insured by the Federal Deposit Insurance Corporation (FDIC) up to federally insured limits. At times balances may exceed FDIC insured limits. The Company has not experienced any losses in such accounts.
Accounts Receivable:
The Companys customer base is primarily comprised of balances due from retailers. Concentrations of credit risk with respect to accounts receivable is limited due to the wide variety of customers and markets into which the Companys services are provided, as well as their dispersion across many different geographical areas. The Company has been expanding its brand and its retail sales to customers in Russia during the past few years, and management does believe the Company has a higher degree of credit risk related to sales made to customers in Russia. As is characteristic of the Companys business and of the jewelry industry generally, the Company extends its customers seasonal credit terms. The carrying amount of receivables approximates fair value. The Company routinely assesses the financial strength of its customers and believes its credit risk exposure on accounts receivable is limited. Based on managements review of accounts receivable, an allowance for doubtful accounts is recorded, if appropriate. The Company does not require collateral to support these financial instruments.
Inventories:
Inventories consist primarily of finished goods, and are stated at the lower of cost or market. Cost is determined using the weighted average method, and average cost is recomputed after each inventory purchase or sale. Inventories are written down if the estimated net realizable value is less than the recorded value, if appropriate. The Company reviews the carrying cost of inventories by product to determine the adequacy of reserves for obsolescence. In accounting for inventories, the Company must make estimates regarding the estimated realizable value of inventory. The estimate is based, in part, on the Companys forecasts of future sales and age of inventory.
Property and Equipment:
Equipment is stated at cost, net of accumulated depreciation. Depreciation and amortization are provided on a straight-line basis over periods ranging from 5 to 10 years.
Leasehold improvements are amortized over the term of the lease or the useful life of the asset, whichever is shorter.
Maintenance, repairs, and renewals that do not materially add to the value of the equipment nor appreciably prolong its life are charged to expense as incurred.
When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in the Statements of Operations.
Long-Lived Assets:
The Company assesses the recoverability of the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future, undiscounted cash flows expected to be generated by an asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No impairment losses have been recognized for the years ended December 31, 2013 and 2012, respectively.
Investment in Unconsolidated Affiliates:
Investments in Unconsolidated Affiliates - Investments in unconsolidated affiliates, in which the Company owns less than 20% or otherwise does not exercise significant influence, are stated at cost. At December 31, 2013 and December 31, 2012, the Company had an investment in which the Company owned less than 1% interest in an unconsolidated affiliate and therefore the investment is carried at cost.
Deferred Financing Costs:
Certain costs associated with financing activities related to the issuance of equity securities are deferred. These costs consist primarily of legal, banking and other professional fees related to the transactions. Deferred financing costs are amortized over the life of the related debt.
F-8
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
Equity-Based Compensation:
The Company accounts for equity based compensation transactions with employees under the provisions of ASC Topic No. 718, Compensation: Stock Compensation (Topic No. 718). Topic No. 718 requires the recognition of the fair value of equity-based compensation in net income. The fair value of common stock issued for compensation is measured at the market price on the date of grant. The fair value of the Companys equity instruments, other than common stocks, is estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. In addition, the calculation of equity-based compensation costs requires that the Company estimate the number of awards that will be forfeited during the vesting period. The fair value of equity-based awards granted to employees is amortized over the vesting period of the award and the Company elected to use the straight-line method for awards granted after the adoption of Topic No. 718.
The Company accounts for equity based transactions with non-employees under the provisions of ASC Topic No. 505-50, Equity-Based Payments to Non-Employees (Topic No. 505-50). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The fair value of common stock issued for payments to non-employees is measured at the market price on the date of grant. The fair value of equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, the Company recognizes an asset or expense in the same manner as if it was to pay cash for the goods or services instead of paying with or using the equity instrument.
Advertising and Promotional Costs:
Advertising and promotional costs are expensed as incurred and are recorded as part of Selling, General and Administrative Expenses in the Statement of Operations. The total cost for the years ended December 31, 2013 and 2012, was approximately $231,284 and $144,332, respectively.
Net (Loss) Income per Common Share:
Basic net (loss) income per share attributable to common stockholders is computed by dividing net (loss) income by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period, including common stock equivalents, such as stock options and warrants using the treasury stock method. Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period and excludes the anti-dilutive effects of common stock equivalents.
New Accounting Pronouncements:
No recently issued accounting pronouncements had or are expected to have a material impact on the Companys financial statements.
Subsequent Events:
The Company evaluated subsequent events, which are events or transactions that occurred after December 31, 2013 through the issuance of the accompanying financial statements.
Note 3
.
Basic and Diluted Loss (Income) Per Share
Net (loss) income per share has been computed according to FASB ASC 260, Earnings per Share, which requires a dual presentation of basic and diluted earnings (loss) per share (EPS). Basic EPS represents net (loss) income divided by the weighted average number of common shares outstanding during a reporting period. Diluted EPS reflects the potential dilution that could occur if securities, including warrants and options, were converted into common stock. The dilutive effect of outstanding warrants, options, and/or conversions is reflected in earnings per share by use of the treasury stock method. In applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise. For the years ended December 31. 2013 and 2012, basic net loss per share equaled the diluted loss per share, since the effect of shares potentially issuable upon exercise or conversion was anti-dilutive. For the years ended December 31, 2013 and 2012, 501,298,702 and 550,907,567 shares, respectively, issuable upon the conversion of convertible debt were not included in the computation of diluted net loss because their inclusion would be anti-dilutive.
F-9
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
|
|
|
|
|
| |
|
|
December 31,
2013
|
|
December 31,
2012
|
Basic net loss per share computation:
|
|
|
|
|
Net loss
|
|
$
|
(835,740)
|
|
$
|
(388,434)
|
Weighted-average common shares outstanding
|
|
|
1,161,531,629
|
|
|
136,340,979
|
Basic net loss per share
|
|
$
|
(0.00)
|
|
$
|
(0.00)
|
Diluted net loss per share computation
|
|
|
|
|
|
|
Net loss
|
|
$
|
(835,740)
|
|
$
|
(388,434)
|
Weighted-average common shares outstanding
|
|
|
1,161,531,629
|
|
|
136,340,979
|
Incremental shares attributable to the assumed exercise of
outstanding stock options and warrants
|
|
|
--
|
|
|
--
|
Total adjusted weighted-average shares
|
|
|
1,161,531,629
|
|
|
136,340,979
|
Diluted net loss per share
|
|
$
|
(0.00)
|
|
$
|
(0.00)
|
Note 4. Property and Equipment
Property and equipment consist of the following:
|
|
|
|
|
|
| |
|
|
December 31,
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
Leasehold Improvements
|
|
$
|
7,781
|
|
|
$
|
7,781
|
Office and equipment
|
|
|
416,445
|
|
|
|
383,320
|
Selling equipment
|
|
|
8,354
|
|
|
|
8,354
|
Furniture and fixtures
|
|
|
18,487
|
|
|
|
18,487
|
|
|
|
|
|
|
|
|
Total at cost
|
|
|
451,067
|
|
|
|
417,942
|
Less: Accumulated depreciation & amortization
|
|
|
(326,143)
|
|
|
|
(307,307)
|
|
|
|
|
|
|
|
|
|
|
$
|
124,924
|
|
|
$
|
110,635
|
Depreciation and amortization expense related to the assets above for the years ended December 31, 2013 and 2012 was $18,836 and $22,261, respectively.
Note 5. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
|
|
|
|
|
|
| |
|
|
December 31,
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
45,766
|
|
|
$
|
274,863
|
Accrued interest
|
|
|
22,385
|
|
|
|
55,923
|
Accrued salaries and wages
|
|
|
51,182
|
|
|
|
25,001
|
|
|
|
|
|
|
|
|
|
|
$
|
119,333
|
|
|
$
|
355,787
|
Accrued salaries and wages include amounts due to an officer of the Company in the amounts of $50,000 and $25,000 for the periods ended December 31, 2013 and 2012, respectively.
F-10
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
Note 6. Related Party
Advances from Stockholder and Accrued Interest
The Company receives periodic advances from its principal stockholder based upon the Companys cash flow needs. At December 31, 2013 and December 31, 2012, $110,655 and $235,317, respectively, was due to the shareholder. Interest expense is accrued at an average annual market rate of interest which was 3.15% and 3.25% at December 31, 2013 and December 31, 2012, respectively. Accrued interest was $42,895 and $37,299 at December 31, 2013 and 2012, respectively. No terms for repayment have been established. As a result, the amount is classified as a current liability.
Employment Agreement
Effective February 28, 2010, the Company entered into an employment agreement with its CEO. The agreement, which is for a five year term, provides for an initial base salary of $175,000 per year with a 3% annual increase thereafter (the Base Salary). The CEO is also entitled to certain bonuses based on net profits before taxes and other customary benefits, as defined in the agreement. In addition, since it is understood that the Company is employing the CEO during a time of economic decline throughout the U.S. and at times and from time to time, the Company may not be in a position to pay the full amount of Base Salary owed the CEO it is understood and agreed to by the Board, that as long as the Company is unable to pay the CEO the full amount of his Base Salary that the Board shall issue to him, from time to time, an amount of shares that will allow him to remain in possession of fifty-one percent (51%) of the Companys then outstanding shares of common stock. Such issuances shall be made to the CEO at any time when his total share holdings are reduced to an amount less than fifty-one percent (51%) as a result of issuance of shares of common stock made on behalf of the Company. The CEO waived the 3% annual increase for 2011.
Effective September 1, 2011, the Company and CEO entered into an Amended and Restated Employment Agreement (the Amended Agreement) which primarily retains the term and compensation of the original agreement. The Amended Agreement, however, removes the section which previously provided for the issuance of Company common stock to the CEO, from time to time, when the Company is unable to pay the CEO the full amount of his Base Salary which would allow the CEO to maintain a fifty-one percent (51%) share of the Companys outstanding common stock. However, the CEO does have the right to request all or a portion of his unpaid Base Salary be paid with the Companys restricted common stock. In addition, the Amended Agreement provides for the issuance of 51 shares of newly authorized Series A Preferred Stock to be issued to the CEO. As defined in the Certificate of Designations, Preferences and Rights of the Series A Preferred Stock, each share of Series A Preferred Stock has voting rights such that the holder of 51 shares of Series A Preferred Stock will effectively maintain majority voting control of the Company. Effective November 3, 2011, the CEO notified the Company that for the one year period, retroactive from April 1, 2011, through December 31, 2012, he would reduce his Base Salary to $100,000. The reduction in base compensation was subsequently extended to December 31, 2013.
Note 7. Bank Lines of Credit
A summary of the Companys credit facilities is as follows:
|
|
|
|
|
| |
|
December 31,
|
|
2013
|
|
|
2012
|
|
|
|
|
|
Various unsecured Credit Cards, minimum payment of principal and interest are due monthly at the credit cards annual interest rate. At December 31, 2013 and 2012, the interest rates ranged from 3.99% to 8.75%.
|
$
|
164,212
|
|
|
$
|
114,693
|
|
|
|
|
|
|
|
Current maturities included in current liabilities
|
$
|
164,212
|
|
|
$
|
114,693
|
The Companys CEO and majority shareholder also serves as a guarantor of the Companys debt.
F-11
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
Note 8. Notes Payable
|
|
|
|
|
| |
|
December 31,
|
|
2013
|
|
|
2012
|
|
|
|
|
|
Notes payable due in equal monthly installments, over 60 months, maturing through April 2014 at interest rates of 10.52%. The notes were collateralized by the assets of the Company.
|
$
|
--
|
|
|
$
|
31,035
|
|
|
|
|
|
|
|
Convertible note payable to TCA Global (see below) due on demand, matured December 22, 2012 at interest rate of 12%
|
|
--
|
|
|
|
132,518
|
|
|
|
|
|
|
|
Credit line of $75,000 as of January 31, 2013 was converted to a term loan. Notes payable due in equal monthly installments, over 60 months, maturing through February 2018 at interest rates of 5%. The notes are collateralized by specific assets of the Company.
|
|
--
|
|
|
|
75,000
|
|
|
|
|
|
|
|
Total
|
|
--
|
|
|
|
238,553
|
|
|
|
|
|
|
|
Less: current maturities
|
|
--
|
|
|
|
157,167
|
|
|
|
|
|
|
|
Long-term portion of notes payable
|
$
|
--
|
|
|
$
|
81,386
|
TCA Global
In November 2011, the Company issued a 12% convertible note (the November 2011 Note #6) in the amount of $200,000 to TCA Global Credit Master Fund, LP (TCA Global). The principal and accrued interest is payable on December 22, 2012, or such earlier date as defined in the agreement. The note is convertible by TCA Global at any time after issue with conversion periods as defined in agreement. The note is convertible into shares of the Companys common stock at a price of 95% of the average of the five lowest trading prices of the stock during the ten day trading period ending one day prior to the date of conversion. During the year ended December 31, 2013, the principal of $132,518, plus accrued interest, and investment banking fees of $29,416 was converted into 147,150,196 shares of common stock. The note was fully paid as of December 31, 2013. During the year ended December 31, 2012, $67,482 was converted into 49,236,111 shares of common stock and a loss upon settlement of $29,532 given the note matured and the instrument ceased to be a derivative liability.
Note 9. Convertible Debt
Asher
On July 9, 2013, the Company issued an 8% convertible note (the July 9 Note) in the amount of $68,750 to Asher Enterprises, Inc. (Asher). The principal and accrued interest is payable on February 1, 2014, or such earlier date as defined in the agreement. The note is convertible by Asher at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 60% of the average of the three lowest trading prices of the stock during the ten day trading period ending one day prior to the date of conversion During the year ended December 31, 2013, the total principal amount of $68,750 was converted into 148,280,155 shares of common stock.
On July 1, 2013, the Company issued an 8% convertible note (the July 1 Note) in the amount of $100,000 to Asher. The principal and accrued interest is payable on March 26, 2014, or such earlier date as defined in the agreement. The note is convertible by Asher at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 60% of the average of the three lowest trading prices of the stock during the ten day trading period ending one day prior to the date of conversion. The outstanding balance at December 31, 2013 was $100,000 with accrued interest of $4,011.
F-12
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
On April 22, 2013, the Company issued an 8% convertible note (the April 22 Note) in the amount of $42,500 to Asher. The principal and accrued interest is payable on January 25, 2014, or such earlier date as defined in the agreement. The note is convertible by Asher at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 60% of the average of the three lowest trading prices of the stock during the ten day trading period ending one day prior to the date of conversion. During the year ended December 31, 2013, the total principal amount of $42,500 and accrued interest of $1,700 was converted into 263,421,053 shares of common stock.
On March 4, 2013, the Company issued an 8% convertible note (the March 4 Note) in the amount of $53,000 to Asher. The principal and accrued interest is payable on December 6, 2013, or such earlier date as defined in the agreement. The note is convertible by Asher at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 60% of the average of the three lowest trading prices of the stock during the ten day trading period ending one day prior to the date of conversion. During the year ended December 31, 2013, the total principal amount of $53,000 and accrued interest of $2,120 was converted into 231,000,000 shares of common stock.
On September 7, 2012, the Company issued an 8% convertible note (the September 7 Note) in the amount of $32,500 to Asher. The principal and accrued interest is payable on June 11, 2013, or such earlier date as defined in the agreement. The note is convertible by Asher at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 60% of the average of the three lowest trading prices of the stock during the ten day trading period ending one day prior to the date of conversion. During the year ended December 31, 2013, the total principal amount of $32,500 and accrued interest of $1,300 was converted into 96,288,083 shares of common stock. The outstanding balance as of December 31, 2012 was $32,500.
On August 6, 2012, the Company issued an 8% convertible note (the August 6 Note) in the amount of $37,500 to Asher. The principal and accrued interest is payable on May 8, 2013, or such earlier date as defined in the agreement. The note is convertible by Asher at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 60% of the average of the three lowest trading prices of the stock during the ten day trading period ending one day prior to the date of conversion. During the year ended December 31, 2013, the total principal of $37,500 and $1,500 of accrued interest was converted into 71,410,256 shares of common stock. The outstanding balance as of December 31, 2012 was $37,500.
On July 10, 2012, the Company issued an 8% convertible note (the July 10 Note) in the amount of $32,500 to Asher. The principal and accrued interest is payable on April 12, 2013, or such earlier date as defined in the agreement. The note is convertible by Asher at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 60% of the average of the three lowest trading prices of the stock during the ten day trading period ending one day prior to the date of conversion. During the year ended December 31, 2013, the principal of $32,500 and $1,300 of accrued interest was converted into 56,661,616 shares of common stock. The outstanding balance as of December 31, 2012 was $32,500.
On June 7, 2012, the Company issued an 8% convertible note (the June 7 Note) in the amount of $37,500 to Asher. The principal and accrued interest is payable on March 11, 2013, or such earlier date as defined in the agreement. The note is convertible by Asher at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 60% of the average of the three lowest trading prices of the stock during the ten day trading period ending one day prior to the date of conversion. During the year ended December 31, 2012, the principal amount of $36,000 was converted into 36,060,606 shares of common stock. During the year ended December 31, 2013, the remaining principal of $10,500 and $1,500 of accrued interest was converted into 18,750,000 shares of common stock. The outstanding balance as of December 31, 2012 was $10,500.
Asher is entitled to have all shares issued upon conversion of the above notes listed upon each national securities exchange or other automated quotation system, if any, upon which shares of the Companys common stock are then listed.
Hanover Group, LLC
On July 25, 2012, the Company issued a 12% convertible note (the July 25 Note #12) in the amount of $26,000 to Hanover Holdings I, LLC (Hanover). The principal and accrued interest is payable on or before July 25, 2013. The note is convertible by Hanover at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 60% of the average of the stock price for the three days prior to the date of conversion. During the year ended December 31, 2013, the total principal of $26,000 and accrued interest of $1,746 was converted into 62,626,472 shares of common stock. The outstanding balance as of December 31, 2012 was $26,000.
F-13
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
On August 29, 2012, the Company issued a 12% convertible note (the August 29 Note) in the amount of $9,000 to Hanover. The principal and accrued interest is payable on or before August 29, 2013. The note is convertible by Hanover at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 60% of the average of the stock price for the three days prior to the date of conversion. During the year ended December 31, 2013, the principal of $9,000 and $540 of accrued interest was converted into 26,500,000 shares of common stock. The outstanding balance as of December 31, 2012 was $9,000.
Panache Capital, LLC/WHC Capital, LLC
On November 7, 2012, the Company issued a 10% convertible note (the November 7 Note) in the amount of $31,982 to Panache Capital, LLC (Panache) in exchange for the account payable. The principal and accrued interest is payable on or before October 24, 2013. The note is convertible by Panache at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 40% of the average of the three lowest stock prices for the ten days prior to the date of conversion. During the year ended December 31, 2012, $31,702 of principal was converted into 30,558,000 shares of common stock. During the year ended December 31, 2013, the remaining principal of $280 and $182 of accrued interest was converted into 721,266 shares of common stock. The outstanding balance as of December 31, 2012 was $280.
On November 6, 2012, the Company issued a 10% convertible note (the November 6 Note) in the amount of $13,000 to Panache. The principal and accrued interest is payable on or before October 24, 2013. The note is convertible by Panache at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 40% of the average of the three lowest stock prices for the ten days prior to the date of conversion. During the year ended December 31, 2013, the total principal of $13,000 was converted into 8,031,059 shares of common stock. The outstanding balance as of December 31, 2012 was $13,000.
JSJ
On October 3, 2012, the Company issued a 10% convertible note (the October 3 Note) in the amount of $30,000 to JSJ Investment, Inc. (JSJ) The principal and accrued interest is payable on or before October 3, 2013. The note is convertible by JSJ at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 65% of the average of the three lowest days during the ten day trading period prior to the date of conversion. During the year ended December 31, 2013, the total principal of $30,000 was converted into 46,758,910 shares of common stock. The outstanding balance as of December 31, 2012 was $30,000
Auctus Private Equity Fund, LLC
On August 19, 2013, the Company issued an 8% convertible note (the August 19 Note) in the amount of $50,000 to Auctus Private Equity Fund, LLC (Auctus). The principal and accrued interest is payable on or before May 19, 2014. The note is convertible by Auctus at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 62.5%of the average of the two days during the ten day trading period prior to the date of conversion. At December 31, 2013, the balance due on the note was $50,000 and accrued interest of $1,458.
On October 5, 2012, the Company issued an 8% convertible note (the October 5 Note) in the amount of $36,750 to Auctus. The principal and accrued interest is payable on or before July 5, 2013. The note is convertible by Auctus at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement. The note is convertible into shares of the Companys common stock at a price of 62.5%of the average of the two days during the ten day trading period prior to the date of conversion. During year ended December 31, 2013, principal of $36,750 was converted into 68,483,520 shares of common stock. The outstanding balance as of December 31, 2012 was $36,750
F-14
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
Fife
In December 2012, the Company entered into a $325,000 convertible note (the December 12, 2012 Note #21) consisting of three tranches to be drawn down with the first tranche totaling $125,000, including $25,000 in loan costs and an additional two tranches totaling $200,000. The note bears a 5% annual interest rate and matures eighteen months from the issuance. The note is convertible into common shares of the Company based on 70% of the average of the 3 lowest closing prices of the common stock for the proceeding 15 consecutive trading days immediately prior to the conversion. During 2013, the conversion price was fixed at $0.005 per share. As of December 31, 2012, the Company only drew down the first tranche totaling $125,000. In 2013, the Company advised the lender that they are terminating the agreement and will not be drawing down the remaining $200,000. However, on February 11, 2013, April 5, 2013, April 23, 2013, and July 1, 2013, the Company drew down an additional $250,000. During the year ended December 31, 2013, principal of $237,518 and accrued interest was converted into 786,866,142 shares of common stock. At December 31, 2013 and 2012, the balance due on the note was $129,819 and $125,000, respectively.
Note 10. Derivative Liability
The Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15 Derivatives and Hedging; Embedded Derivatives (Topic No. 815-15). Topic No. 815-15 requires the Company to bifurcate and separately account for the conversion features as an embedded derivative contained in the Companys convertible debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for any unrealized change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes pricing model. Amortization of debt discount amounted to $470,502 and $330,433 for years ended December 31, 2013 and 2012, respectively. The derivative liability is revalued each reporting period using the Black-Scholes model. Convertible debt as of December 31, 2013 and 2012 was $279,818 and $390,264, respectively, and are shown net of debt discount in the amounts of $108,375 and $132,518, respectively. As of December 31, 2013 and 2012, the derivative liability was $57,882 and $298,187, respectively.
The Black-Scholes model was valued with the following inputs:
Stock Price
- The Stock Price was based on the average closing price of the Companys stock as of the Valuation Date. Stock Prices ranged from $0.0002 to $0.0045 in the period January 1, 2013 through December 31, 2013.
Variable Conversion Prices
- The variable conversion price was based on: (i) 60% of the average of the 3 lowest Stock Prices out of the last 10 trading days prior to the Valuation Date (Asher); (ii) 65% of the average of the 3 lowest Stock Prices out of the last 10 trading days prior to the Valuation Date (Panache); (iii) 60% of the average of the stock price for the three days prior to the date of conversion (Hanover); (iv) 65% of the average of the 3 lowest Stock Prices during the 10 trading days ending 1 day prior to the Valuation Date (JSJ); (v) 62.5% of the average of the 2 lowest Stock Prices during the 10 trading days ending 1 day prior to the Valuation Date (Auctus); (vi) 60% of the average of the 3 lowest Stock Prices during the 10 trading days ending 1 day prior to the Valuation Date (WHC Capital, LLC).
Time to Maturity
- The time to maturity was determined based on the length of time between the Valuation Date and the maturity of the debt. Time to maturity ranged from 12 months to 0 months in the period January 1, 2013 through December 31, 2013.
Risk Free Rate
- The risk free rate was based on the Treasury Note rate as of the Valuation Dates with term commensurate with the remaining term of the debt. The risk free rate at December 31, 2013 was 0.13% based on one year.
Volatility
- The volatility was based on the historical volatility of three comparable companies as historical volatility of the Company was not useful in developing the expected volatility due to the limited trading history of its stock. The average volatility for the comparable companies at December 31, 2013 was 39.06%.
F-15
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
Note 11. Modification of Convertible Debt (Extinguishment Accounting)
During the year ended December 31, 2012 the Company modified the terms of certain convertible debentures which extended the term of the debt. In connection with the modification, the Company compared the present value of both old and new convertible debt. The Company determined that the present value of the new convertible debt exceeded the present value of the old convertible debt by more than 10%, which resulted in the application of extinguishment accounting. The modification of the debt instrument for the year ended December 31, 2012, resulted in debt instruments being exchanged with substantially different terms and extinguishment accounting was applied resulting in a loss on extinguishment of debt in the amount of $16,474. The original debt was $23,069 with a date of modification of August 29, 2012.
Note 12. Stockholders Equity
The Company is authorized to issue 6,000,000,000 shares of common stock, par value $0.00001 per share and 51 shares of preferred stock, par value $0.00001 per share. At December 31, 2013 and December 31, 2012, there were 2,431,169,267 and 361,970,539 common shares issued and outstanding, respectively. In October 2009, the Company affected a 12 for 1 forward split of its common stock. Effective July 15, 2013, the Company amended its Certificate of Incorporation to change the Companys authorized capital from 1,500,000,000 common shares to 3,000,000,000 common shares of stock. In April 2014, the Company amended its Certificate of Incorporation to change the Companys authorized capital to 6,000,000,000 shares of common stock and its par value to $0.00001 per share. All share and per share data has been adjusted to reflect such stock splits. Effective September 1, 2011, the Company authorized and issued 51 shares of Series A Preferred Stock, par value $0.001 to its CEO (see Note 5). In April 2014, the Company changed its par value on its preferred stock from $0.001 to $0.00001. The Series A Preferred Stock pays no dividends and has no conversion rights. Each share of Series A Preferred Stock has voting rights such that the holder of 51 shares of Series A Preferred Stock will effectively maintain majority voting control of the Company.
For the year ended December 31, 2013, the Company issued the following shares of common stock:
a)
885,811,163 shares of common stock to Asher for conversion of its convertible debt and accrued interest. The shares were valued at $286,670.
b)
68,483,520 shares of common stock to Auctus for conversion of its convertible debt. The shares were valued at $26,510.
c)
704,327,513 shares of common stock to Fife for conversion of its convertible debt and accrued interest. The shares were valued at $225,282.
d)
89,126,472 shares of common stock to Hanover for conversion of its convertible debt and accrued interest. The shares were valued at $37,286.
e)
46,758,910 shares of common stock to JSJ for conversion of its convertible debt. The shares were valued at $30,000.
f)
721,266 shares of common stock to Panache for conversion of its convertible debt. The shares were valued at $462.
g)
82,538,629 shares of common stock to Proteus Capital for conversion of its convertible debt and accrued interest. The shares were valued at $39,280.
h)
147,150,196 shares of common stock to TCA Global for conversion of its convertible debt and accrued interest. The shares were valued at $182,290.
i)
8,031,059 shares of common stock to WHC Capital, LLC (WHC Capital) for conversion of its convertible debt. The shares were valued at $13,000.
j)
33,000,000 shares of common stock for legal fees:. These shares were valued at $63,016.
k)
3,250,000 shares of common stock for financial services. These shares were valued at $3,900.
F-16
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
For the year ended December 31, 2012, the Company issued the following shares of common stock:
a)
93,284,364 shares of common stock to Asher for conversion of its convertible debt. The shares were valued at $194,500.
b)
43,538,658 shares of common stock to Genesis for conversion of its convertible debt. The shares were valued at $195,063.
c)
3,996,000 shares of common stock to Caesar Capital Group for conversion of its convertible debt. The shares were valued at $9,990.
d)
15,119,306 shares of common stock to Panache for conversion of its convertible debt. The shares were valued at $60,710.
e)
46,949,623 shares of common stock to Magna Group for conversion of its convertible debt. The shares were valued at $90,813.
f)
30,558,000 shares of common stock to WHC Capital for conversion of its convertible debt. The shares were valued at $31,702.
g)
30,923,445 shares of common stock to JSJ for conversion of its convertible debt. The shares were valued at $54,649.
h)
49,236,111 shares of common stock to TCA Global for conversion of its convertible debt. The shares were valued at $97,014.
i)
14,000,000 shares of common stock for legal fees. These shares were valued at $49,000.
Note 13. Income Taxes
The components of the Companys deferred taxes at December 31, 2013 and 2012 are as follows:
|
|
|
|
|
| |
|
|
December 31,
|
|
December 31,
|
|
|
2013
|
|
2012
|
Deferred tax assets:
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
701,518
|
|
$
|
603,142
|
Startup costs
|
|
|
13,073
|
|
|
14,286
|
Accounts receivable reserves
|
|
|
122,239
|
|
|
-
|
Deferred compensation
|
|
|
19,975
|
|
|
-
|
Depreciation
|
|
|
(27,203)
|
|
|
(30,898)
|
Deferred tax asset
|
|
|
829,602
|
|
|
568,530
|
Less valuation allowance
|
|
|
(829,602)
|
|
|
(568,530)
|
|
|
|
|
|
|
|
Deferred tax asset, net
|
|
$
|
--
|
|
$
|
--
|
The recognized deferred tax asset is based upon the expected utilization of its benefit from future taxable income. At December 31, 2013, the Company had approximately $1,439,000 of federal net operating tax loss carryforwards expiring at various dates through 2033. The Tax Reform Act of 1986 enacted a complex set of rules which limits a company's ability to utilize net operating loss carryforwards and tax credit carryforwards in periods following an ownership change. These rules define an ownership change as a greater than 50 percent point change in stock ownership within a defined testing period which is generally a three-year period. As a result of stock which may be issued by us from time to time and the conversion of warrants, options or the result of other changes in ownership of our outstanding stock, the Company may experience an ownership change and consequently our utilization of net operating loss carryforwards could be significantly limited.
Based upon the net losses historically incurred and, the prospective global economic conditions, management believes that it is not more likely than not that the deferred tax asset will be realized and has provided a valuation allowance of 100% of the deferred tax asset. The valuation allowance increased (decreased) by approximately $134,508 and $114,858 in the years ended December 31, 2013 and 2012, respectively.
F-17
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
A reconciliation of the income tax (benefit) provision at the statutory Federal tax rate of 34% to the income tax (benefit) provision recognized in the financial statements is as follows:
|
|
|
|
|
|
|
| |
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
U.S. statutory rate
|
|
|
(34%)
|
|
|
|
(34%)
|
|
Income tax expenses - state and local, net of federal benefit
|
|
|
6%
|
|
|
|
6%
|
|
Change in valuation allowance
|
|
|
28%
|
|
|
|
28%
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
-
|
|
|
|
-
|
|
Note 14. Commitments
The Company leases certain office and manufacturing facilities and equipment. The Companys office and manufacturing facilities are currently leased on a month to month basis at $1,100 per month.
In addition, the Company has agreements to lease equipment for use in the operations of the business under operating leases.
Rent expense for the Company's operating leases for year ended December 31, 2013 and 2012 amounted to approximately $13,200 and $13,200, respectively.
Note 15. Litigation
The Company is currently not involved in any litigation that it believes could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Note 16. Significant Customer Concentrations
During the year ended December 31, 2013, the Company had two customers, Funicelli (7.6%) and Sarkin Nourian (7.7%) accounting for over 5% or more of our annual sales. During the year ended December 31, 2012, the Company had one customer, Ultra Diamonds Inc., which accounted for approximately 5% of our annual sales.
Sales to customers in Russia represented 36.1% and 30.7% of total sales for the years ended December 31, 2013 and 2012, respectively. The Company has no other sales outside the U.S.
All of our sales are generated from our customer base of approximately 50 customers.
As of December 31, 2013 and 2012, one individual customer balance represented 21% and 20%, respectively, of the Companys outstanding accounts receivable. No other customer has a balance over 10% of the Companys outstanding accounts receivable.
Note 17. Fair Value Measurements
FASB ASC 820, Fair Value Measurements defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and prescribes disclosures about fair value measurements.
As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
F-18
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
The three levels of the fair value hierarchy defined by ASC 820 are as follows:
Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 - Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
Level 3 - Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in managements best estimate of fair value.
The valuation techniques that may be used to measure fair value are as follows:
Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities
Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings method
Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost)
The carrying value of the Companys borrowings is a reasonable estimate of its fair value as borrowings under the Companys credit facility have variable rates that reflect currently available terms and conditions for similar debt.
The Companys assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
The following table sets forth by level within the fair value hierarchy the Companys financial assets and liabilities that were accounted for at fair value as of December 31, 2013 and December 31, 2012. As required by FASB ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
December 31, 2013
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
57,882
|
|
|
$
|
-
|
|
|
$
|
57,882
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
57,882
|
|
|
$
|
-
|
|
|
$
|
57,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
December 31, 2012
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
298,187
|
|
|
$
|
-
|
|
|
$
|
298,187
|
|
Total Liabilities
|
|
$
|
-
|
|
|
$
|
298,187
|
|
|
$
|
-
|
|
|
$
|
298,187
|
|
In addition, the FASB issued, The Fair Value Option for Financial Assets and Financial Liabilities. This guidance expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value option for any of its qualifying financial instruments.
F-19
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Financial Statements
(continued)
Note 18. Subsequent Events
On February 26, 2014, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware in order to increase the number of authorized shares of capital stock of the Company to 6,000,000,000 shares from 3,000,000,000 shares.
In April 2014, the Company amended its Certificate of Incorporation to change the par value of the Company's common sock to $0.00001 per share. The Company also changed the par value of its preferred stock to $0.00001.
F-20
Table of Contents