NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Nature of Operations and Basis of Presentation
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. 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 Companys intent is to take advantage of the Bergio brand and establish a chain of retail stores worldwide. Our branded product lines are products and/or collections designed by our designer and CEO Berge Abajian and will be the centerpiece of our retail stores.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary consisting of normal recurring adjustments to present fairly the financial position of the Company as of June 30, 2019, the results of operations for the three and six months ended June 30, 2019 and 2018, and statements of cash flows for the six months ended June 30, 2019 and 2018. These results are not necessarily indicative of the results to be expected for the full year. The financial statements have been prepared in accordance with the requirements of Form 10-Q and consequently do not include disclosures normally made in an Annual Report on Form 10-K. The December 31, 2018 balance sheet included herein was derived from the audited financial statements included in the Companys Annual Report on Form 10-K as of that date. Accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and notes thereto included in the Companys Annual Report on Form 10-K/A for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission (SEC) on August 21, 2019 (the Annual Report).
Note 2 - Going Concern
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern.
The Company has suffered recurring losses, and has an accumulated deficit of $8,827,605 as of June 30, 2019. As of June 30 2019, the Company had $419,568 in convertible debentures which are currently due and the Company is currently negotiating terms with the holders of these debentures. At June 30, 2019, the Company also had a stockholders deficit of $842,680. These factors raise substantial doubt about the Company's ability to continue as a going concern. The recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which in turn, is dependent upon the Company's ability to raise capital and/or generate positive cash flows from operations.
It is our intention to establish Bergio as a holding company for the purpose of establishing retails stores worldwide. Our branded product lines are products and/or collections designed by our designer and CEO Berge Abajian and will be the centerpiece of our retail stores. We also intend to complement our own quality-designed jewelry with other products and our own specially-designed handbags. This is in line with our strategy and belief that a brand name can create an association with innovation, design and quality which helps add value to the individual products as well as facilitate the introduction of new products. It is our intention to open elegant stores in high-end areas and provide excellent service in our stores which will be staffed with knowledgeable professionals. We also intend to sell our products on a wholesale basis to limited customers.
These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
8
BERGIO INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 3 - 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.
During the six months ended June 30, 2019, there have been no other material changes in the Companys significant accounting policies to those previously disclosed in the Companys Annual Report.
The Company evaluated subsequent events, which are events or transactions that occurred after June 30, 2019 through the issuance of the accompanying financial statements.
Note 4 - Net Loss per Share
Basic earnings (loss) per share includes no dilution and is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Dilutive earnings per share reflect the potential dilution of securities that could occur through the effect of common shares issuable upon the exercise of stock options, warrants and convertible securities. Basic net loss per share equaled the diluted loss per share for the three and six months ended June 30, 2019 and 2018, since the effect of shares potentially issuable upon the exercise or conversion was anti-dilutive. Equity instruments that may dilute earnings per share in the future are listed in Note 7 below. For the three and six months ended June 30, 2019, 6,162,876,190 shares issuable upon the conversion of convertible debt were not included in the computation of diluted net loss because their inclusion would be anti-dilutive. For the three and six months ended June 30, 2018, 6,162,876,190 shares issuable upon the conversion of convertible debt were not included in the computation of diluted net loss because their inclusion would be anti-dilutive.
The following table sets forth the computation of earnings per share:
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Basic net income (loss) per share computation:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(111,345)
|
|
$
|
(136,352)
|
|
$
|
(202,193)
|
|
$
|
(261,186)
|
Weighted-average common shares outstanding
|
|
5,391,410,729
|
|
|
4,884,403,924
|
|
|
5,391,410,729
|
|
|
4,795,884,101
|
Basic net income (loss) per share
|
$
|
(0.00)
|
|
$
|
(0.00)
|
|
$
|
(0.00)
|
|
$
|
(0.00)
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(111,345)
|
|
$
|
(136,352)
|
|
$
|
(202,193)
|
|
$
|
(131,589)
|
Weighted-average common shares outstanding
|
|
5,391,410,729
|
|
|
4,884,403,924
|
|
|
5,391,410,729
|
|
|
4,795,884,101
|
Incremental shares attributable to the shares
issuable upon conversion of convertible debt
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Total adjusted weighted-average shares
|
|
5,391,410,729
|
|
|
4,884,403,924
|
|
|
5,391,410,729
|
|
|
4,795,884,101
|
Diluted net income (loss) per share
|
$
|
(0.00)
|
|
$
|
(0.00)
|
|
$
|
(0.00)
|
|
$
|
(0.00)
|
9
BERGIO INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5 - New Authoritative Accounting Guidance
The Financial Accounting Standards Board FASB issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606 which superseded nearly all existing revenue recognition guidance under GAAP. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, among others. The impact of the adoption of ASU 2014-09 on the Company's condensed consolidated financial statements is as follows:
The Company's revenue is primarily generated from the sale of finished products to customers (primarily through the retail, e-commerce or wholesale channels). The Company's performance obligations underlying such sales, and the timing of revenue recognition related thereto, remain substantially unchanged following the adoption of this ASU.
In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company adopted the new standard on January 1, 2019 and use the effective date as the date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company elects the package of practical expedients, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company determined that this standard will have a material effect on the Companys financial statements. While the Company continues to assess all of the effects of adoption, the Company currently believes the most significant effects relate to the recognition of new ROU assets and lease liabilities on the Companys balance sheet for the Companys real estate operating leases. On adoption, the Company recognized additional operating lease liabilities of $75,340 with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.
No other recently issued accounting pronouncements had or are expected to have a material impact on the Companys condensed consolidated financial statements.
10
BERGIO INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 6 - 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. The Company continues to negotiate with the lender.
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. During the six months ended June 30, 2019, there were no conversions. The outstanding balances at June 30, 2019 and December 31, 2018 were $19,393 and $19,393, respectively with accrued interest of $2,313 and $1,457 at June 30, 2019 and December 31, 2018, respectively.
During the year ended December 31, 2014, the Company drew down an additional $314,703. During the six months ended June 30, 2019, there were no conversions. The outstanding balances at June 30, 2019 and December 31, 2018 were $329,175 and $329,175 respectively, with accrued interest of $122,633 and $104,823 at June 30, 2019 and December 31, 2018, respectively.
11
BERGIO INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 6 - Convertible Debt (continued)
111 Recovery Corp. and Vis Vires Group, Inc.
On May 31, 2019, the Vis Vires Group, Inc. (Vis Vires) entered into an assignment agreement with 111 Recovery Corp. wherein Vis Vires assigned all of its rights, title and interests in, to and under the convertible notes (discussed below) to 111 Recovery Corp. from the inception of the notes, together with unpaid accrued interest on the convertible notes. The Company acknowledged and approved this assignment.
On March 11, 2015, the Company entered into an 8% convertible note in the amount of $38,000 with Vis Vires Group, Inc. 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. During the six months ended June 30, 2019, there were no conversions. The Company is currently in default, and interest accrues at the default interest rate of 22%. The outstanding balance at June 30, 2019 and December 31, 2018 was $38,000 with accrued interest of $16,196 and $12,051 at June 30, 2019 and December 31, 2018, respectively. The Company is currently negotiating an extension to this note.
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. During the six months ended June 30, 2019, there were no conversions. The Company is currently in default, and interest accrues at the default interest rate of 22%. The outstanding balance at June 30, 2019 and December 31, 2018 was $33,000 with accrued interest of $24,693 and $28,293 at June 30, 2019 and December 31, 2018, respectively. The Company is currently negotiating an extension to this note.
As of June 30, 2019 and December 31, 2018, total convertible debt was $419,568 and $419,568, respectively.
Note 7 - Advances from Principal Executive Officer and Accrued Interest
The Company also receives periodic advances from its principal executive officer based upon the Companys cash flow needs. At June 30, 2019 and December 31, 2018 $443,950 and $455,541, respectively, was due to such officer, including accrued interest. Interest expense is accrued at an average annual market rate of interest which was 5.25% and 5.25% at June 30, 2019 and December 31, 2018, respectively. Interest expense due to such officer was $14,053 and $29,453 for the three and six months ended June 30, 2019 as compared to $10,986 and $23,000 for the three and six months ended June 30, 2018, respectively. Accrued interest was $179,536 and $149,993 at June 30, 2019 and December 31, 2018, respectively. No terms for repayment have been established. As a result, the amount is classified as a current liability.
On March 31, 2019, the Principal Executive Office signed an agreement with the Company extending payments of $1,000,000 of all amounts due, including deferred compensation (discussed below). As such, $154,428 of the total amount due, including accrued interest is not due until January 31, 2021 as a result of the financial situation of the Company. As such, the $154,428 was classified as a long-term liability and $289,521 was classified as a current liability at June 30, 2019.
12
BERGIO INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 - Advances from Principal Executive Officer and Accrued Interest (continued)
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 his salary to conserve cash. Deferred wages due to the CEO amounted to $845,571 and $795,571 for the periods ended June 30, 2019 and December 31, 2018, respectively.
On March 31, 2019, the Principal Executive Office signed an agreement with the Company extending payments of $1,000,000 of all amounts due, including deferred compensation (see above). All of the $845,571 is not due until January 31, 2021 as a result of the financial situation of the Company. As such, the $845,571was classified as a long-term liability at June 30, 2019.
Effective January 1, 2019, the Principal Executive Officer agreed to reduce his salary to $100,000 as a result of the financial situation of the Company.
Note 8 - Loan Payable
The Company receives periodic advances from investor based upon the Companys cash flow needs. There is no written loan agreement between the Company and the lender as the Company is negotiating the terms of the agreement. No repayment terms have yet been established. As a result, these amounts are classified as a current liability. The balances due to these investors were $177,260 at June 30, 2019 and $125,000 at December 31, 2018.
Note 9 - Litigation
We are currently not involved in any litigation that we believe 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.
13
BERGIO INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 10 - Operating Lease Liability
The Company leases retail space at two different locations. One lease has monthly payments from $1,350 to $1,665 which expire in May 2024. The second lease has a contingent rental based on 10% of sales. Contingent rentals are not included in operating lease liabilities. The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company used incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date. The Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing interest rates available in the market for similar borrowings. The Company used a discount rate of 10% at June 30, 2019.
The following table reconciles the undiscounted future minimum lease payments (displayed by year in aggregate) under non-cancelable operating leases with terms more than one year to the total operating lease liabilities on the consolidated balance sheet as of June 30, 2019:
2019 remainder
|
$
|
8,490
|
2020
|
|
17,460
|
2021
|
|
18,180
|
2022
|
|
18,900
|
2023 and thereafter
|
|
26,360
|
Total minimum lease payments
|
|
89,390
|
Less amounts representing interest
|
|
(18,198)
|
Present value of net minimum lease payments
|
|
71,192
|
Less current portion
|
|
(11,068)
|
Long-term capital lease obligation
|
$
|
60,124
|
Disclosures related to periods prior to adoption of ASU 2016-02
The Company adopted ASU 2016-842 using the retrospective method at January 1, 2019 as noted in Note 5New Authoritative Accounting Guidance. As required, the following disclosure is provided for periods prior to adoption. Minimum operating lease commitments as of December 31, 2018 that have initial or remaining lease terms in excess of one year as follows:
|
Years Ended December 31, 2018
|
2019
|
5,400(1)
|
(1)The above amount does not include contingent rentals which may be paid under lease agreement with Ocean Resort Casino. This rental is based upon 10% of gross sales at this location.
(2)Lease renewal for the first retail space did not get executed until April 2019, and, as such, rental obligations are not included in the above amounts as of December 31, 2018.
14