Notes to Consolidated 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 corporations name was changed to Bergio International, Inc. 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 April 3, 2014, the Company filed a Certificate of Amendment of Certificate of Incorporation with the Secretary of State of the State of Delaware to reduce the par value of all shares of common stock and preferred stock from $0.001 to $0.00001 per share. On February 26, 2014, the Company filed a certificate of amendment to its Certificate of Amendment to the 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. Effective on October 14, 2014, the Company filed a Certificate of Amendment to the Certificate of Incorporation to effectuate a 1-for-1,000 reverse stock split of the Companys common stock. All share and per share data has been adjusted to reflect such stock splits and change in par value. 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 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
Principles of Consolidation:
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and include the Company and its wholly-owned subsidiary. All significant inter-company accounts and transactions have been eliminated.
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.
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.
F-6
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 2. Summary of Significant Accounting Policies (continued)
Non-controlling Interest:
Non-controlling interest represents third party ownership in the net assets of our consolidated subsidiaries. For financial reporting purposes, the assets and liabilities of our majority owned subsidiaries are consolidated with those of our own, with any third party investors interest shown as non-controlling interest.
On June 1, 2015, the Company acquired a 51% interest in R.S. Fisher, Inc., a Delaware corporation, in exchange for funding the Companys operations. The minority holder contributed jewelry molds and inventory valued at $349,292.
Fair Value of Financial Instruments:
The Company estimates that the fair value of all financial instruments at December 31, 2015 and, 2014, as defined in 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, 2015 and 2014 for cash, accounts receivable, inventories and accounts payable and loans 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.
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.
F-7
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 2. Summary of Significant Accounting Policies (continued)
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, 2015 and 2014, 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, 2015 and 2014.
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, 2015 and December 31, 2014.
Accounts Receivable:
Accounts receivable are generated from sales of fine jewelry to retail outlets throughout the United States. At December 31, 2015 and December 31, 2014, 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. As of December 31, 2014, the Company ceased operations in Russia, and accounts receivable is comprised of balances from U.S. customers only.
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, 2015 and 2014, the allowance for doubtful accounts was $73,804 and $305,980, respectively.
F-8
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 2. Summary of Significant Accounting Policies (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 into retail stores, and opened its first retail store in the fourth quarter of 2014. These sales come with a lower degree of credit risk as these sales are made by cash or credit card. 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 Statement 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, 2015 and 2014, respectively.
F-9
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 2. Summary of Significant Accounting Policies (continued)
Investment 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, 2015 and December 31, 2014, 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.
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, 2015 and 2014, was approximately $62,652 and $186,277, 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.
F-10
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 2. Summary of Significant Accounting Policies (continued)
New Accounting Pronouncements:
In January 2016, the FASB issued ASU No. 2016-01 (ASC Subtopic 825-10), Financial Instruments- Overall Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU require entities to measure all investments in equity securities at fair value with changes recognized through net income. This requirement does not apply to investments that qualify for the equity method of accounting, to those that result in consolidation of the investee, or for which the entity meets a practicability exception to fair value measurement. Additionally, the amendments eliminate certain disclosure requirements related to financial instruments measured at amortized cost and add disclosures related to the measurement categories of financial assets and financial liabilities. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for only certain portions of the ASU. The Company is in the process of assessing the impact, if any, on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17 (ASC Topic 740), Income Taxes Balance Sheet Classification of Deferred Taxes. The amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted by all entities as of the beginning of an interim or annual reporting period. The Company is in the process of assessing the impact, if any, on its consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16 (ASC Topic 805), Business Combinations Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require that an acquirer recognize measurement period adjustments in the period in which the adjustments are determined. The income effects of such measurement period adjustments are to be recorded in the same periods financial statements but calculated as if the accounting had been completed as of the acquisition date. The impact of measurement period adjustments to earnings that relate to prior period financial statements are to be presented separately on the income statement or disclosed by line item. The amendments in this update are for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted for public business entities for reporting periods for which financial statements have not yet been issued. The adoption of this new guidance is not expected to have a material impact on the Companys consolidated financial statements and disclosures.
In August 2015, the FASB issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs with Line-of-Credit Arrangements (ASU 2015-15). The previous guidance in ASU 2015-03, as defined below, did not address the presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-15 is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted and entities shall apply the guidance retrospectively to all prior year periods presented. The Company is in the process of assessing the effects of the application of the new guidance.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). To simplify presentation of debt issuance costs, ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. ASU 2015-03 is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted and entities shall apply the guidance retrospectively to all prior year periods presented. The Company is in the process of assessing the effects of the application of the new guidance.
F-11
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 2. Summary of Significant Accounting Policies (continued)
New Accounting Pronouncements (continued):
In May 2014, the FASB issued ASU 2014-09 that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the new guidance to determine the impact, if any, it will have on its consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern, which requires management to evaluate whether conditions or events raise substantial doubt about the entitys ability to continue as a going concern and, if so, to provide related footnote disclosures. The guidance is effective for annual or interim reporting periods beginning on or after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on the Companys consolidated Financial Statements.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. This ASU applies to inventory that is measured using first-in, first-out (FIFO) or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predicable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured using last-in, last-out (LILO). This ASU is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim and annual reporting period. We are currently evaluating the impact of adopting ASU 2015-11 on our consolidated financial statements and related disclosures.
No other recently issued accounting pronouncements had or are expected to have a material impact on the Companys condensed consolidated financial statements.
Subsequent Events:
The Company evaluated subsequent events, which are events or transactions that occurred after December 31, 2015 through the issuance of the accompanying financial statements.
Note 3. Basic and Diluted Income (Loss) Per Share
Net loss 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 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. 2015 and 2014, 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, 2015 and 2014, 8,045,137 and 501,299 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-12
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 3. Basic and Diluted Income (Loss) Per Share (continued)
|
|
|
|
|
| |
|
|
December 31,
2015
|
|
December 31,
2014
|
Basic net loss per share computation:
|
|
|
|
|
Net loss
|
|
$
|
(1,146,957)
|
|
$
|
(1,520,761)
|
Weighted-average common shares outstanding
|
|
|
24,015,461
|
|
|
5,209,293
|
Basic net loss per share
|
|
$
|
(0.054)
|
|
$
|
(0.29)
|
Diluted net loss per share computation:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,146,957)
|
|
$
|
(1,520,761)
|
Weighted-average common shares outstanding:
|
|
|
24,015,461
|
|
|
5,209,293
|
Incremental shares attributable to the assumed exercise of
outstanding stock options and warrants
|
|
|
--
|
|
|
--
|
Total adjusted weighted-average shares
|
|
|
24,015,461
|
|
|
5,209,293
|
Diluted net loss per share
|
|
$
|
(0.05)
|
|
$
|
(0.29)
|
Note 4. Property and Equipment
Property and equipment consists of the following:
|
|
|
|
|
|
| |
|
|
December 31,
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
310,976
|
|
|
$
|
310,976
|
Office and equipment
|
|
|
902,783
|
|
|
|
548,376
|
Selling equipment
|
|
|
8,354
|
|
|
|
8,354
|
Furniture and fixtures
|
|
|
18,487
|
|
|
|
18,487
|
|
|
|
|
|
|
|
|
Total at cost
|
|
|
1,240,600
|
|
|
|
886,193
|
Less: Accumulated depreciation & amortization
|
|
|
(492,513)
|
|
|
|
(358,362)
|
|
|
|
|
|
|
|
|
|
|
$
|
748,087
|
|
|
$
|
527,831
|
Depreciation and amortization expense related to the assets above for the years ended December 31, 2015 and 2014 was $133,152 and $32,218, respectively.
Note 5. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
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|
|
|
|
|
| |
|
|
December 31,
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
109,796
|
|
|
$
|
112,649
|
Accrued interest
|
|
|
38,123
|
|
|
|
3,616
|
Accrued salaries and wages
|
|
|
281,659
|
|
|
|
130,391
|
|
|
|
|
|
|
|
|
|
|
$
|
429,578
|
|
|
$
|
246,656
|
Accrued salaries and wages include amounts due to an officer of the Company in the amounts of $280,659 and $124,900 for the periods ended December 31, 2015 and 2014, respectively.
F-13
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 6. Related Party
Advances from Principal Executive Officer and Accrued Interest
The Company receives periodic advances from its principal executive officer based upon the Companys cash flow needs. At December 31, 2015 and December 31, 2014, $253,073 and $224,124, respectively, was due to such officer, including accrued interest. Interest expense is accrued at an average annual market rate of interest which was 3.15% at December 31, 2015 and December 31, 2014, respectively. Interest expense due to such officer was $12,235 and $6,264 for the years ended December 31, 2015 and 2014, respectively. Accrued interest was $61,392 and $49,658 at December 31, 2015 and 2014, respectively. No terms for repayment have been established. As a result, the amount is classified as a Current Liability.
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.
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 (as defined in the Amended Agreement) 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. The CEO is currently deferring a portion of his salary to conserve cash. Deferred wages due to the CEO amounted to $280,659 and $124,900 for the periods ended December 31, 2015 and December 31, 2014, respectively.
The Company is in process of extending this agreement.
F-14
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 7. Bank Lines of Credit
A summary of the Companys credit facilities is as follows:
|
|
|
|
|
| |
|
December 31,
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Various unsecured Credit Cards, minimum payment of principal and interest are due monthly at the credit cards annual interest rate. At December 31, 2015 and 2014, the interest rates ranged from 3.99% to 22.5%.
|
$
|
340,622
|
|
|
$
|
273,132
|
|
|
|
|
|
|
|
Current maturities included in current liabilities
|
$
|
340,622
|
|
|
$
|
273,132
|
The Companys CEO and majority shareholder also serves as a guarantor of the Companys debt.
Note 8. Convertible Debt
Fife, Typenex and Iliad
In December 2012, the Company entered into a $325,000 convertible note with Fife consisting of three tranches to be drawn down with the first tranche totaling $125,000, including $25,000 in loan costs and additional two tranches totaling $200,000. The note bears a 5% annual interest rate and matures eighteen months from the date of issuance. The note is convertible into shares of the Companys common stock based on 70% of the average of the three 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. On February 11, 2013, April 5, 2013, April 23, 2013, and July 1, 2013, the Company drew down an additional $250,000.
On June 5, 2014, the Company, Fife, Typenex and Iliad Research and Trading, LLP (Iliad) entered into an Assignment and Assumption Agreement and Note Purchase Agreement (the Note Purchase Agreement) whereby Iliad acquired all of Fifes and Typenexs right, title, obligations and interest in, to and arising under the Company Notes (as defined in the Note Purchase Agreement) and the Note Purchase Documents (as defined in the Note Purchase Agreement).
On October 17, 2014, the Company entered into a financing arrangement with Iliad to provide additional financing in the amount of up to $450,000 through the issuance of a Secured Convertible Promissory Note (the Note). The Company agreed to cover Iliads legal, accounting and other related fees in the amount of $5,000, which is included in the principal balance of the Note. The Note will accrue interest at the rate of 8% per annum until the Note is paid in full. Monies are to be drawn in eight tranches with the initial tranche in the amount of $105,000, and the remaining balance of $350,000 in seven tranches of $50,000 each. The Company drew down the initial tranche on October 17, 2014. The Note has a maturity date of July 17, 2016.
Beginning six months after October 17, 2014 and on the same day each month thereafter, the Company shall make an installment payment, based upon the unpaid balance. At the option of the Company, payments may be made in cash or by converting the installment amount into shares of the Companys common stock. The conversion price is equal to the lesser of (i) $0.0005 per share and (ii) 67.5% of the average of the three lowest closing bid prices in the 15 trading days immediately preceding the conversion. The Company has the right to prepay the Note at 135% of the outstanding balance at the time of prepayment. The outstanding balance at December 31, 2015 and December 31, 2014 was $100,000, respectively with accrued interest of $10,630 and $1,966 at December 31, 2015 and December 31, 2014, respectively.
F-15
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 8. Convertible Debt (continued)
During the year ended December 31, 2014, the Company drew down an additional $314,703. During the year ended December 31, 2015, principal of $11,826 and accrued interest of $16,858 was converted into 13,289,000 shares of common stock. The outstanding balances at December 31, 2015 and December 31, 2014 were $328,470 and $340,296, respectively, with accrued interest of $11,005 and $-0- at December 31, 2015 and December 31, 2014, respectively.
Third Party Note
In November 2014, the Company converted a portion of its outstanding accounts payable for legal services to a third party into two convertible promissory notes in the aggregate amount of $63,275. These are demand notes and accrue interest at the rate of 10% on the outstanding balance. The notes are convertible into shares of the Companys common stock based on 65% of the average ten trading days closing bid price during the preceding ten consecutive trading days immediately prior to the conversion. There were no conversions during the year ended December 31, 2014. During the year ended December 31, 2015, principal of $14,327 and accrued interest of $2,371 was converted into 29,236,396 shares of common stock. The outstanding balances at December 31, 2015 and December 31, 2014 were $48,948 and $63,275, respectively, with accrued interest of $4,249 and $650 at December 31, 2015 and December 31, 2014, respectively.
On April 7, 2015, the convertible promissory notes and accrued interest were assigned to Carebourn Capital L.P. (Carebourn Capital). All terms and conditions remained the same, except that notes are convertible into shares of the Companys common stock equal to 50% of the average ten trading days closing bid price during the preceding ten consecutive trading days immediately prior to the conversion.
KBM Worldwide
On February 4, 2015, the Company entered into an 8% convertible note in the amount of $54,000 with KBM Worldwide, Inc. (KBM Worldwide). The principal and accrued interest is payable on or before November 6, 2015. At the option of the Company, but not before six months from the date of issuance, the holder may elect to convert all or part of such note into the Companys common stock. 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 during the 10 days prior to the date of conversion or $0.00009, whichever is greater. During the year ended December 31, 2015, principal of $12,740 was converted into 15,650,136 shares of common stock. The outstanding balance at December 31, 2015 was $41,260 and accrued interest of $3,584. The Company is currently negotiating an extension to this note.
Vis Vires Group, Inc.
On March 11, 2015, the Company entered into an 8% convertible note in the amount of $38,000 with Vis Vires Group, Inc. (Vis Vires). The principal and accrued interest is payable on or before November 6, 2015. At the option of the Company, but not before six months from the date of issuance, the holder may elect to convert all or part of the convertible into the Companys common stock. The note is convertible into shares of the Companys common stock at a price equal to 60% of the average of the three lowest trading prices during the 10 days prior to the date of conversion or $0.00009, whichever is greater. There were no conversions during the year ended December 31, 2015. The outstanding balance at December 31, 2015 was $38,000 and accrued interest of $2,491. The Company is currently negotiating an extension to this note.
F-16
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 8. Convertible Debt (continued)
On April 30, 2015, the Company entered into an 8% convertible note in the amount of $33,000 with Vis Vires. The principal and accrued interest is payable on or before November 6, 2015. At the option of the Company, but not before six months from the date of issuance, the holder may elect to convert all or part of the convertible into the Companys common stock. The note is convertible into shares of the Companys common stock at a price equal to 60% of the average of the three lowest trading prices during the 10 days prior to the date of conversion or $0.00009, whichever is greater. There were no conversions during the year ended December 31, 2015. The outstanding balance at December 31, 2015 was $33,000 and accrued interest of $1,695. The Company is currently negotiating an extension to this note.
LG Capital Funding, LLC
On May 4, 2015, the Company entered into an 8% convertible note in the amount of $36,750 with LG Capital Funding, LLC (LG Capital). The principal and accrued interest is payable on or before May 4, 2016. The holder, at its option, may elect to convert all or part of the convertible into the Companys common stock. The note is convertible into shares of the Companys common stock at a price equal to 60% of the lowest trading prices during the 20 days prior to the date of conversion. During the year ended December 31, 2015, principal of $310 and accrued interest of $14 was converted into 2,698,250 shares of common stock. The outstanding balance at December 31, 2015 was $36,440 and accrued interest of $1,968.
JMJ Financial
On April 15, 2015, the Company entered into a $250,000 convertible note with JMJ Financial. The consideration was $225,000 and $25,000 original issue discount. The principal and accrued interest is payable on or before May 4, 2016. On April 15, 2015, the Company borrowed $25,000 of this amount. The holder, at its option, may elect to convert all or part of the convertible into the Companys common stock. The note is convertible into shares of the Companys common stock at a price equal to the lesser of $0.018 per share or 60% of the lowest trading price during the 25 days prior to the date of conversion. There were no conversions during the year ended December 31, 2015. The outstanding balance at December 31, 2015 was $27,778 and accrued interest of $1,695.
As of December 31, 2015 and December 31, 2014, total convertible debt was $644,592 and $445,569, respectively, net of debt discount of $9,489 and $57,882, respectively.
Note 9. 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 $151,819 and $113,648 for the years ended December 31, 2015 and 2014, respectively. The derivative liability is revalued each reporting period using the Black-Scholes model. As of December 31, 2015 and December 31, 2014, the derivative liability was $189,019 and $140,307, respectively.
The Black-Scholes model utilized the following inputs to value the derivative liability at the date of issuance of the convertible note at December 31, 2015:
Stock Price - The stock price was based closing price of the Companys stock as of the valuation date, which was $.0003 at December 31, 2015.
F-17
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 9. Derivative Liability (continued)
Variable Conversion Prices
- The conversion price was based on: (i) 50% of the average closing bid price during the preceding ten consecutive trading days immediately prior to the conversion at December 31, 2015 for Carebourn Capital; (ii) 60% of the lowest trading prices during the 20 days prior to the date of conversion at December 31, 2015 for LG Capital; (iii) the lower of $0.018 per share or 60% of the lowest trading price during the 25 days prior to the date of conversion at December 31, 2015 for JMJ Financial.
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 125 to 471 days at December 31, 2015.
Risk Free Rate
- The risk free rate was based on the Treasury Note rate as of the valuation dates with a term commensurate with the remaining term of the debt. The risk free rate at December 31, 2015 ranged from 0.16% to 0.65%, based on the term of the note.
Volatility
- The volatility was based on the historical volatility of the Company. The average volatility was 386.98% at December 31, 2015.
Note 10. 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, 2015 and December 31, 2014, there were 69,272,518 and 7,398,736 common shares issued and outstanding, respectively. On April 3, 2014, the Company filed a Certificate of Amendment of Certificate of Incorporation with the Secretary of State of the State of Delaware to reduce the par value of all shares of common stock and preferred stock from $0.001 to $0.00001 per share. On February 26, 2014, the Company filed a Certificate of Amendment to the 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. Effective on October 14, 2014, the Company filed a Certificate of Amendment to the Certificate of Incorporation to effectuate a 1-for-1,000 reverse stock split of the Companys common stock. All share and per share data has been adjusted to reflect such stock splits and change in par value. Effective September 1, 2011, the Company authorized and issued 51 shares of Series A Preferred Stock, par value $0.001 to its CEO. 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, 2015, the Company issued the following shares of common stock:
1)
On January 16, 2015, we issued 640,000 shares of common stock valued at $6,048 to Typenex for conversion of its convertible debt and accrued interest.
2)
On February 4, 2015, the Company entered into an 8% convertible note in the amount of $54,000 with KBM Worldwide which is due and payable on or before November 6, 2015.
3)
On March 11, 2015, the Company entered into an 8% convertible note in the amount of $38,000 with Vis Vires Group, which is due and payable on or before November 6, 2015.
4)
On April 9, 2015, we issued 870,000 shares of common stock valued at $954 to Fife for conversion of its accrued interest.
5)
On May 13, 2015, we issued 775,000 shares of common stock valued at $9,566 to Fife for conversion of its convertible debt and accrued interest.
6)
On May 27, 2015, we issued 513,703 shares of common stock valued at $3,570 to Carebourn Capital for conversion of its convertible debt and accrued interest.
7)
On June 12, 2015, we issued 538,874 shares of common stock valued at $862 to Carebourn Capital for conversion of its convertible debt.
F-18
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 10. Stockholders Equity (continued)
8)
On June 29, 2015, we issued 565,279 shares of common stock valued at $1,723 to Carebourn Capital for conversion of its convertible debt.
9)
On May 4, 2015, the Company issued an 8% convertible note in the amount of $36,750 with LG Capital which is due and payable on or before May 4, 2016.
10)
On April 15, 2015, the Company issued a convertible note in the amount of $25,000 with JMJ Financial which is due and payable on or before April 17, 2017.
11)
On April 30, 2015, the Company issued an 8% convertible note in the amount of $33,000 with Vis Vires Group which is due and payable on or before February 4, 2016.
12)
On July 13, 2015, we issued 1,208,000 shares of common stock valued at $2,120 to Iliad for conversion of its accrued interest.
13)
On July 14, 2015, we issued 652,170 shares of common stock valued at $1,122 to Carebourn Capital for conversion of its convertible debt.
14)
On July 17, 2015, we issued 684,127 shares of common stock valued at $1,006 to Carebourn Capital for conversion of its convertible debt.
15)
On July 28, 2015, we issued 717,648 shares of common stock valued at $912 to Carebourn Capital for conversion of its convertible debt.
16)
On August 6, 2015, we issued 752,813 shares of common stock valued at $900 to Carebourn Capital for conversion of its convertible debt.
17)
On August 11, 2015, we issued 804,167 shares of common stock valued at $965 to KBM Worldwide for conversion of its convertible debt.
18)
On August 12, 2015, we issued 829,106 shares of common stock valued at $895 to Carebourn Capital for conversion of its convertible debt.
19)
On August 13, 2015, we issued 1,200,000 shares of common stock valued at $2,106 to Iliad for conversion of its accrued interest.
20)
On August 18, 2015, we issued 840,909 shares of common stock valued at $925 to KBM Worldwide for conversion of its convertible debt.
21)
On August 31, 2015, we issued 1,927,727 shares of common stock valued at $2,170 to KBM Worldwide for conversion of its convertible debt.
22)
On September 1, 2015, we issued 1,972,727 shares of common stock valued at $2,170 to KBM Worldwide for conversion of its convertible debt.
23)
On September 13, 2015, we issued 1,690,000 shares of common stock valued at $2,016 to Iliad for conversion of its accrued interest.
24)
On September 17, 2015, we issued 2,533,784 shares of common stock valued at $1,895 to KBM Worldwide for conversion of its convertible debt.
25)
On September 18, 2015, we issued 2,533,784 shares of common stock valued at $1,895 to KBM Worldwide for conversion of its convertible debt.
26)
On September 18, 2015, we issued 1,243,668 shares of common stock valued at $858 to Carebourn Capital for conversion of its convertible debt.
27)
On September 23, 2015, we issued 2,788,000 shares of common stock valued at $3,186 to Iliad for conversion of its convertible debt and accrued interest.
28)
On September 29, 2015, we issued 1,689,531 shares of common stock valued at $1,005 to Carebourn Capital for conversion of its convertible debt.
29)
On September 29, 2015, we issued 2,518,519 shares of common stock valued at $1,360 to KBM Worldwide for conversion of its convertible debt.
30)
On October 2, 2015, we issued 2,518,519 shares of common stock valued at $1,360 to KBM Worldwide for conversion of its convertible debt.
31)
On October 6, 2015, we issued 2,019,132 shares of common stock valued at $1,060 to Carebourn Capital for conversion of its convertible debt.
32)
On October 15, 2015, we issued 4,318,000 shares of common stock valued at $2,116 to Fife for conversion of its convertible debt and accrued interest.
F-19
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 10. Stockholders Equity (continued)
33)
On October 20, 2015, we issued 2,329,652 shares of common stock valued at $571 to Carebourn Capital for conversion of its convertible debt.
34)
On October 26, 2015, we issued 2,443,805 shares of common stock valued at $476 to Carebourn Capital for conversion of its convertible debt.
35)
On November 4, 2015, we issued 2,563,551 shares of common stock valued at $385 to Carebourn Capital for conversion of its convertible debt.
36)
On November 24, 2015, we issued 2,563,551 shares of common stock valued at $269 to Carebourn Capital for conversion of its convertible debt.
37)
On November 24, 2015, we issued 2,698,250 shares of common stock valued at $324 to LG Capital for conversion of its convertible debt and accrued interest.
38)
On December 1, 2015, we issued 2,946,994 shares of common stock valued at $265 to Carebourn Capital for conversion of its convertible debt.
39)
On December 14, 2015, we issued 3,091,396 shares of common stock valued at $309 to Carebourn Capital for conversion of its convertible debt.
40)
On December 16, 2015, we issued 3,091,396 shares of common stock valued at $510 to Carebourn Capital for conversion of its convertible debt.
For the year ended December 31, 2014, the Company issued the following shares of common stock:
1)
On January 15, 2014, we issued 110,951 shares of common stock to Fife for conversion of its convertible debt and accrued interest. The shares were valued at $16,617.
2)
On January 24, 2014, we issued 86,422 shares of common stock to Fife for conversion of its convertible debt. The shares were valued at $14,087.
3)
On January 24, 2014, we issued 145,000 shares of common stock to Asher Enterprises, Inc. (Asher) for conversion of its convertible debt. The shares were valued at $20,300.
4)
On February 4, 2014, we issued 107,000 shares of common stock to Asher for conversion of its convertible debt. The shares were valued at $12,840.
5)
On February 5, 2014, we issued 156,667 shares of common stock to Asher for conversion of its convertible debt. The shares were valued at $18,800.
6)
On February 7, 2014, we issued 114,500 shares of common stock to Fife for conversion of its convertible debt and accrued interest. The shares were valued at $16,030.
7)
On February 14, 2014, we issued 95,833 shares of common stock to Asher for conversion of its convertible debt. The shares were valued at $11,500.
8)
On February 21, 2014, we issued 200,000 shares of common stock to Asher for conversion of its convertible debt. The shares were valued at $24,000.
9)
On February 26, 2014, we issued 100,000 shares of common stock to Auctus Private Equity Fund, LLC (Actus) for conversion of its convertible debt. The shares were valued at $14,000.
10)
On February 26, 2014, we issued 50,000 shares of common stock to Auctus for conversion of its convertible debt. The shares were valued at $8,750.
11)
On February 26, 2014, we sold 125,000 shares of common stock with warrants to Caesar Capital Group for $50,000.
12)
On February 27, 2014, we issued 103,500 shares to Asher for conversion of its convertible debt and accrued interest. The shares were valued at $15,560.
13)
On February 28, 2014, we sold 125,000 shares of common stock with warrants to ARRG for $50,000.
14)
On February 28, 2014, we issued 102,701 shares of common stock to Fife for conversion of its convertible debt and accrued interest. The shares were valued at $14,738.
15)
On March 12, 2014, we issued 60,919 shares of common stock to Proteus Capital for conversion of its convertible debt. The shares were valued at $39,280.
16)
On March 12, 2014, we issued 156,396 shares of common stock to Proteus Capital for conversion of its convertible debt. The shares were valued at $18,768.
F-20
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 10. Stockholders Equity (continued)
17)
On March 12, 2014, we issued 80,000 shares of common stock to TCA Global Credit Master Fund, LP (TCA) for financial services. The shares were valued at $56,000.
18)
On March 13, 2014, we issued 42,034 shares of common stock to Fife for conversion of its convertible debt. The shares were valued at $18,069.
19)
On March 26, 2014, we issued 181,279 shares of common stock to Typenex for conversion of its convertible debt and accrued interest. The shares were valued at $49,320.
20)
On April 10, 2014, we issued 85,000 shares of common stock to TCA for financial services. The shares were valued at $51,000.
21)
On April 22, 2014, we issued 53,571 shares of common stock to Auctus for conversion of its convertible debt. The shares were valued at $15,000.
22)
On April 28, 2014, we issued 125,000 shares of common stock to a third party for conversion legal services. The shares were valued at $50,000.
23)
On May 15, 2014, we issued 69,939 shares of common stock to Auctus for conversion of its convertible debt and accrued interest. The shares were valued at $14,687.
24)
On May 22, 2014, we issued 147,622 shares of common stock to Fife for conversion of its convertible debt and accrued interest. The shares were valued at $31,001.
25)
On June 18, 2014, we issued 100,000 shares of common stock to TCA for financial services. The shares were valued at $30,000.
26)
On June 23, 2014, we issued 217,918 shares of common stock to Typenex Fife for conversion of its convertible debt and accrued interest. The shares were valued at $29,419.
27)
On July 24, 2014, we issued 294,118 shares of common stock to Typenex Fife for conversion of its convertible debt and accrued interest. The shares were valued at $20,000.
28)
On August 4, 2014, we issued 100,000 shares of common stock to TCA for financial services. The shares were valued at $18,750.
29)
On August 7, 2014, we issued 161,900 shares of common stock to Fife for conversion of its convertible debt and accrued interest. The shares were valued at $11,333.
30)
On October 23, 2014, we issued 575,000 shares of common stock to Typenex for conversion of its convertible debt and accrued interest. The shares were valued at $5,499.
31)
On November 13, 2014, we issued 550,000 shares of common stock to Fife for conversion of its convertible debt and accrued interest. The shares were valued at $5,454.
32)
On December 2, 2014, we issued 350,000 shares of common stock to a third party for conversion of accounts payable in the amount of $2,246.
Note 11. Income Taxes
The components of the Companys deferred taxes at December 31, 2015 and 2014 are as follows:
|
|
|
|
|
| |
|
|
December 31,
|
|
December 31,
|
|
|
2015
|
|
2014
|
Deferred tax assets:
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
1,867,468
|
|
$
|
1,230,700
|
Startup costs
|
|
|
10,641
|
|
|
11,857
|
Accounts receivable reserves
|
|
|
39,478
|
|
|
29,485
|
Deferred compensation
|
|
|
112,124
|
|
|
49,898
|
Depreciation
|
|
|
(23,729)
|
|
|
12,832
|
Deferred tax asset
|
|
|
2,005,982
|
|
|
1,334,772
|
Less valuation allowance
|
|
|
(2,005,982)
|
|
|
(1,334,772)
|
|
|
|
|
|
|
|
Deferred tax asset, net
|
|
$
|
--
|
|
$
|
--
|
F-21
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 11. Income Taxes (continued)
The recognized deferred tax asset is based upon the expected utilization of its benefit from future taxable income. At December 31, 2015, the Company had approximately $4,420,000 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.
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,
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
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 12. 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.
The Company also leases retail space for its store in Closter, NJ for approximately $1,500 per month.
In addition, the Company has agreements to lease equipment for use in the operations of the business under operating leases.
The following is a schedule of approximate future minimum rental payments for operating leases subsequent to the year ended December 31, 2015.
|
|
| |
|
|
Years Ended December 31,
|
2016
|
|
$
|
15,000
|
2017
|
|
|
15,300
|
2018
|
|
|
15,900
|
2019
|
|
|
5,400
|
|
|
$
|
66,000
|
Rent expense for the Company's operating leases for year ended December 31, 2015 and 2014 amounted to approximately $31,658 and $21,735, respectively.
F-22
Table of Contents
BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 13. 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 14. Significant Customer Concentrations
During the years ended December 31, 2015 and 2014, the Company had no single customer that accounted for over 5% or more of our annual sales.
Sales to customers in Russia represented 55.9% of total sales for the year ended December 31, 2014. The Company has no other sales outside the U.S. As of October 1, 2014, the Company ceased operations in Russia due to the economic, currency and political condition in Russia, and to concentrate on its domestic operations and the duty free industry, which is a $60 billion industry worldwide. All of our sales are generated from our customer base of approximately 50 customers.
As of December 31, 2015, one customer represented 11.9% of net accounts receivable. As of December 31, 2014 two customers represented 60.1% and 13.7%, respectively, of the Companys net accounts receivable.
Note 15. 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).
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.
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BERGIO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (continued)
Note 15. Fair Value Measurements (continued)
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, 2015 and December 31, 2014. 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.
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|
|
|
|
|
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|
|
|
|
|
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| |
December 31, 2015
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|
Level I
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|
|
Level II
|
|
|
Level III
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|
|
Total
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|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
189,019
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|
|
$
|
-
|
|
|
$
|
189,019
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
189,019
|
|
|
$
|
-
|
|
|
$
|
189,019
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
140,307
|
|
|
$
|
-
|
|
|
$
|
140,307
|
Total Liabilities
|
|
$
|
-
|
|
|
$
|
140,307
|
|
|
$
|
-
|
|
|
$
|
140,307
|
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.
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