Bergio International, Inc. - Quarter Report: 2014 March (Form 10-Q)

Part I - Financial Information

Item 1. Financial Statements

BERGIO INTERNATIONAL, INC.

BALANCE SHEETS (UNAUDITED)

The accompanying notes are an integral part of these financial statements.

3

BERGIO INTERNATIONAL, INC.

STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these financial statements.

4

BERGIO INTERNATIONAL, INC.

STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

The accompanying notes are an integral part of these financial statements.

5

BERGIO INTERNATIONAL, INC.

STATEMENTS OF CASH FLOWS (UNAUDITED)

The accompanying notes are an integral part of these financial statements.

6

BERGIO INTERNATIONAL, INC.

Notes to 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 corporate name was changed to Bergio International, Inc. and the Company implemented a 12-for-1 forward stock split of its common shares. All share and per share data has been adjusted to reflect such stock splits. Effective July 15, 2013, the Company amended its Certificate of Incorporation to change the Company’s authorized capital from 1,500,000,000 common shares to 3,000,000,000 common shares of stock.  On February 26, 2014, the Company filed a certificate of amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the number of authorized shares of capital stock of the Company to 6,000,000,000 shares from 3,000,000,000 shares. The Company is engaged in the product design, manufacturing, distribution of fine jewelry primarily in the United States and is headquartered in Fairfield, New Jersey. The Company also markets its fine jewelry in Russia. The Company experiences significant seasonal volatility. The first two quarters of the year typically represent 15% - 35% of annual sales, and the remaining two quarters represent the remaining portion of annual sales.

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2014, the results of operations for the three months ended March 31, 2014, and statements of cash flows for the three months ended March 31, 2014.  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, 2012 balance sheet included herein was derived from the audited financial statements included in the Company’s 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed with the Securities and Exchange Commission (“SEC”) on April 15, 2014 (the “Annual Report”).

The Company evaluated subsequent events, which are events or transactions that occurred after March 31, 2014 through the issuance of the accompanying financial statements.

Note 2 - Summary of Significant Accounting Policies

During the three months ended March  31, 2014, there have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC on April 15, 2014.

Note 3 - Loss per Share

Basic earnings 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 months ended March 31, 2014 and 2013, 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 6.  For the three months ended March 31, 2014, 346,888,889 shares, issuable upon the conversion of convertible debt and the exercise of warrants were not included in the computation of diluted loss per share because their inclusion would be antidilutive. For the three months ended March 31, 2013, 821,942,308 shares, issuable upon the conversion of convertible debt were not included in the computation of diluted loss per share because their inclusion would be antidilutive.

The following table sets forth the computation of earnings per share:

7

BERGIO INTERNATIONAL, INC.

Notes to Financial Statements (unaudited)

Note 4 - New Authoritative Accounting Guidance

For the three months ended March 31, 2014, there have been no significant accounting pronouncements or changes in accounting pronouncements that have become effective that are expected to have a material impact on the Company’s financial position, operations or cash flows.

Note 5 - Bank Lines of Credit

A summary of the Company’s credit facilities is as follows:

The Company’s CEO and majority shareholder also serves as a guarantor of the Company’s debt.

Note 6 - Convertible Debt

Asher

On July 1, 2013, the Company issued an 8% convertible note (the “July 1 Note”) in the amount of $100,000 to Asher Enterprises, Inc. (“Asher”). The principal and accrued interest is payable on March 26, 2014, or such earlier date as defined in the agreement.  The note is convertible by Asher at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement.  The note is convertible into shares of the Company’s common stock at a price of 60% of the average of the three lowest trading prices of the stock during the ten day trading period ending one day prior to the date of conversion. During the three months ended March 31, 2014, the total principal amount of $100,000 and accrued interest was converted into 808,000,000 shares of common stock. The outstanding balances at March 31, 2014 and December 31, 2013 were $-0- and $100,000, respectively, with accrued interest of $4,011 at December 31, 2013.

Auctus

On August 19, 2013, the Company issued an 8% convertible note (the “August 19 Note”) in the amount of $50,000 to Auctus Private Equity Fund, LLC (“Auctus”).  The principal and accrued interest is payable on or before May 19, 2014. The note is convertible by Auctus at any time after the six month anniversary of the issue date and by the Company at any time after issue with conversion periods as defined in the agreement.  The note is convertible into shares of the Company’s common stock at a price of 62.5% of the average of the two days during the ten day trading period prior to the date of conversion.  During the three months ended March 31, 2014, principal of $22,750 was converted into 150,000,000 shares of common stock. The outstanding balances at March 31, 2014 and December 31, 2013 were $27,250 and $50,000, respectively, with accrued interest of $2,111 and $1,458 at March 31, 2014 and December 31, 2013, respectively.

Fife and Typenex

In December 2012, the Company entered into a $325,000 convertible note (the “December 12, 2012 Note #21”) consisting of three tranches to be drawn down with the first tranche totaling $125,000, including $25,000 in loan costs and an additional two tranches totaling $200,000. The note bears a 5% annual interest rate and matures eighteen months from the issuance. The note is convertible into common shares of the Company based on 70% of the average of the 3 lowest closing prices of the common stock for the proceeding 15 consecutive trading days immediately prior to the conversion. During 2013, the conversion price was fixed at $0.005 per share. As of December 31, 2012, the Company only drew down the first tranche totaling $125,000. On February 11, 2013, April 5, 2013, April 23, 2013, and July 1, 2013, the Company drew down an additional $250,000.  During the year ended December 31, 2013, principal of $237,518 and accrued interest was converted into 786,866,142 shares of common stock.  During the three months ended March 31, 2014, principal of $75,264 was converted into 846,201,316 shares of common stock. The outstanding balances at March 31, 2014 and December 31, 2013 were $54,555 and $129,819, respectively, with accrued interest of $2,111 and $1,458 at March 31, 2014 and December 31, 2013, respectively.

8

BERGIO INTERNATIONAL, INC.

Notes to Financial Statements (unaudited)

Note 7 - 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 Company’s 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 $102,862 and $68,888 for the three months ended March 31, 2014 and 2013, respectively. The derivative liability is revalued each reporting period using the Black-Scholes model. Convertible debt as of March 31, 2014 and December 31, 2013 was $81,804 and $279,818, respectively, and are shown net of debt discount in the amounts of $5,513 and $108,375, respectively. As of March 31, 2014 and December 31, 2013, the derivative liability was $11,530 and $57,882, respectively.

The Black-Scholes model was valued with the following inputs:

Stock Price - The stock price was based on the average closing price of the Company’s stock as of the respective valuation date. Stock Prices ranged from $0.0002 to $0.0015 in the period January 1, 2014 through March 31, 2014.

Variable Conversion Prices - The variable conversion price was based on: (i) 60% of the average of the 3 lowest stock prices out of the last 10 trading days prior to the valuation date (Asher); (ii) 62.5% of the average of the 2 lowest stock prices during the 10 trading days ending 1 day prior to the valuation date (Auctus)..

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 3 months to 1 month in the period January 1, 2014 through March 31, 2014.

Risk Free Rate - The risk free rate was based on the Treasury Note rate as of the valuation dates with term commensurate with the remaining term of the debt. The risk free rate at March 31, 2014 was 0.13% based on three months.

Volatility - The volatility was based on the historical volatility of three comparable companies as historical volatility of the Company was not useful in developing the expected volatility due to the limited trading history of its stock. The average volatility for the comparable companies at March 31, 2014 was 42.2%.

Note 7 - Related Party Transactions

The Company receives periodic advances from its principal stockholder based upon the Company’s cash flow needs. At March 31, 2014 and December 31, 2013, $144,011 and $153,550, respectively, was due to the shareholder, including accrued interest.  Interest expense is accrued at an average annual market rate of interest which was 3.15% at March 31, 2014 and December 31, 2013, respectively.  No terms for repayment have been established. As a result, the amount is classified as a Current Liability.

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 Company’s 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 Company’s 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 also deferred a portion of his salary to conserve cash. Deferred wages due to the CEO amounted to $70,649 and $50,000 for the periods ended March 31, 2014 and December 31, 2013, respectively.

9

BERGIO INTERNATIONAL, INC.

Notes to Financial Statements (unaudited)

Note 7 - 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.

Note 8 - Subsequent Events

In April 2014, the Company amended its Certificate of Incorporation to change the Company’s par value to $0.00001 per share.

On April 30, 2014, the Company entered into an asset purchase agreement in which it agreed to purchase assets comprised primarily of retail jewelry store equipment.  The Company plans to open up a retail jewelry store in 2014.

10

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

This quarterly report on Form 10-Q and other reports (collectively, the “Filings”) filed by Bergio International, Inc. (“Bergio” or the “Company”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management.  Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof.  When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements.  Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on April 15, 2014, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire.  Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements.  Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).  These accounting principles require us to make certain estimates, judgments and assumptions.  We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made.  These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented.  Our financial statements would be affected to the extent there are material differences between these estimates and actual results.  In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application.  There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.  The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

Plan of Operation

We concentrate our business on boutique, upscale jewelry stores. We currently sell our jewelry to approximately 50 independent jewelry retailers across the United States and 16 stores in Russia and have spent over $3 million in branding the Bergio name through tradeshows, trade advertising, national advertising and billboard advertising since launching the line in 1995. Our products consist of a wide range of unique styles and designs made from precious metals such as, gold, platinum, and Karat gold, as well as diamonds and other precious stones. We have approximately 100 to 150 product styles in our inventory, with prices ranging from $1,500 to $200,000. We have manufacturing control over our line as a result of having a manufacturing facility in New Jersey and an arrangement with a manufacturing company in Russia as well as subcontracts with facilities located in Italy.

It is our intention to establish Bergio as a holding company for the purpose of acquiring established jewelry design and manufacturing firms who possess branded product lines. Branded product lines are products and/or collections whereby the jewelry manufacturers have established their products within the industry through advertising in consumer and trade magazines as well as possibly obtaining federally registered trademarks of their products and collections. 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.

We intend to acquire design and manufacturing firms throughout the United States and Europe. If and when we pursue any potential acquisition candidates, we intend to target the top 10% of the world’s jewelry manufactures that have already created an identity and brand in the jewelry industry. We intend to locate potential candidates through our relationships in the industry and expect to structure the acquisition through the payment of cash, which will most likely be provided from third party financing, as well as our common stock but not cash generated from our operations. In the event we obtain financing from third parties for any potential acquisitions, Bergio may agree to issue our common stock in exchange for the capital received. However, as of the date of this report, we do not have any binding agreements with any potential acquisition candidates or arrangements with any third parties for financing.

11

Results of Operations

Sales

Net sales for the three months ended March 31, 2014 decreased $53,218 (16.8%) to $263,552 as compared to $316,770 for the three months ended March 31, 2013.  The decrease in sales is primarily attributed to the weakness in the U.S. market offset partially by an increase in sales to Russia.

Typically, revenues experience significant seasonal volatility in the jewelry industry. The first two quarters of any given year typically represent approximately 25%-35% of total year revenues, based on historic results. The holiday buying season during the last two quarters of every year typically account for the remainder of annual sales. This year there has been a general slowdown in the market.

Gross Profit

Gross profit for the three months ended March 31, 2014 decreased $21,951 (17.6%) to $102,753 as compared to $124,704 for the three months ended March 31, 2013.  The decrease in gross profit is primarily due to a decrease in sales. During the three months ended March 31, 2014, our gross profit as a percentage of sales was 39.0% as compared to a gross profit as a percentage of sales of 39.4% for the three months ended March 31, 2013.   

Selling, General and Administrative Expenses

Total selling, general and administrative expenses increased $147,372 (69.3%) to $359,909 for the three months ended March 31, 2014 as compared to $212,537 for three months ended March 31, 2013. This increase is attributed to higher marketing and travel expenses as well as increased investment banking fees.  

Income (Loss) from Operations

As a result of the above, we had a loss from operations of $256,346 for three months ended March 31, 2014 as compared $87,833 for the three months ended March 31, 2013.

Other Income (Expense)

For the three months ended March 31, 2104, the Company had other expense of $64,714 as compared to $192,585 for the three months ended March 31, 2013. The decrease in other expense is mostly attributed to the lower derivative expense and the gain on the extinguishment of derivative offset mostly by loss on the change in the fair value of the derivative. These are non-cash transactions and are primarily attributed to the effect of the price of the underlying stock on the derivative liability.

Net Income (Loss)

As a result of the above, the Company incurred a net loss of $321,059 for the three months ended March 31, 2014 as compared to a net loss of $280,418 for the three months ended March 31, 2013.

12

Liquidity and Capital Resources

The following table summarizes working capital at March 31, 2014, compared to December 31, 2013.

At March 31, 2014, we had cash of $132,012 as compared to a cash balance of $-0- at December 31, 2013, an increase of $132,012. Over the next twelve months we believe that our existing capital combined with available borrowing under our bank line of credit and anticipated cash flow from operations will be sufficient to sustain our current operations. Additionally, our major stockholder has agreed to continue, from time to time as needed, to advance funds under similar terms as his current advances. It is anticipated that we will need to sell additional equity and/or debt securities in the event we locate potential mergers and/or acquisitions.

Our working capital increased $33,548. This increase is primarily attributed to a decrease in convertible debt and derivative liability and an increase in cash offset partially lower accounts receivable and higher bank lines of credit and accounts payable and accrued liabilities.

Accounts receivable - net at March 31, 2014 and December 31, 2013, was $524,419 and $763,187, respectively, representing a decrease of $238,768 or 31.3%.  We typically offer our customers 60, 90 or 120 day payment terms on sales, depending upon the product mix purchased. When setting terms with our customers, we also consider the term of the relationship with individual customers and management’s assessed credit risk of the respective customer, and may at management’s discretion, increase or decrease payment terms based on those considerations. The decrease is mainly attributed to collecting receivables from prior periods.  Inventory at March 31, 2014 and December 31, 2013, was $1,684,154 and $1,611,584, respectively.  Our management seeks to maintain a very consistent inventory level that it believes is commensurate with current market conditions and manufacturing requirements related to anticipated sales volume. We historically do not have an inventory reserve for slow moving or obsolete products due to the nature of our inventory of precious metals and stones, which are commodity-type raw materials and rise in value based on quoted market prices established in actively trade markets. This allows for us to resell or recast these materials into new products and/or designs as the market evolves.

Accounts payable and accrued liabilities at March 31, 2014, were $141,277, compared to $119,333 at December 31, 2013, which represents an 18.4% increase.  The main reason for the increase is management’s attempt to control our payables in these economic conditions in order to improve our cash flow. Advances from our major stockholder at March 31, 2014, were $144,011, compared to $153,550 at December 31, 2013. The decrease is a result of making re-payments to our major stockholder.

During the three months ended March 31, 2014, the Company had a net increase in cash of $132,012. The Company’s principal sources and uses of funds were as follows:

Cash used in operating activities.  For the three months ended March 31, 2014, the Company used $19,297 in cash for operations as compared to $100,459 in cash for the three months ended March 31, 2013. This decrease is primarily attributed to the lower change in inventories.

Cash used in investing activities. Net cash used in investing activities was $10,490 for the three months ended March 31, 2014 as compared to $15,844 for the three months ended March 31, 2013, due to a decrease in purchases of equipment.

Cash provided by financing activities. Net cash provided by financing activities for the three months ended March 31, 2014 was $161,799 as compared to $64,567 for the three months ended March 31, 2013. This increase was primarily the result of the increase in proceeds from bank lines of credit and from the sale of common stock and lower payments towards the advances to the shareholder offset partially by lower proceeds from convertible debt.

13

Bank Lines of Credit and Notes Payable

Our indebtedness is comprised of various bank credit lines, term loans, capital leases and credit cards intended to provide capital for the ongoing manufacturing of our jewelry line, in advance of receipt of the payment from our retail distributors.  

In December 2011, we entered into a $75,000 bank line of credit agreement with Columbia Bank. During 2013, the Company increased the credit line to $175,000.  Interest is at the bank’s prime rate plus 1.75% with a minimum rate of 5.75%. The line is collateralized by our assets as well as a personal guarantee by our Chief Executive Officer, Berge Abajian.  As of March 31, 2014, we had an outstanding balance of $170,000.

In addition to term loans, we have a number of various unsecured credit card obligations.  These obligations require minimal monthly payments of interest and principal and as of December 30, 2013, have interest rates ranging from 3.99% to 8.75%.  As of March 31, 2014, we have outstanding balances related to these obligations of $65,550.

Convertible Debt

We have convertible debt notes maturing in various months during 2014 with the latest maturity of October 23, 2014. The notes carry an interest rate  of 8%. The conversion feature is accounted for as an embedded derivative carried on our balance sheet at fair value and any unrealized change in fair value is a component on our statement of operations. The embedded derivative is valued using the Black-Scholes pricing model. At March 31, 2014, convertible debt of $76,291 is net of debt discount of $5,513. We have made a concerted effort to reduce convertible debt, because of its dilutive effects, and have significantly reduced this debt over the last few years.

Satisfaction of Our Cash Obligations for the Next 12 Months

A critical component of our operating plan impacting our continued existence is to efficiently manage the production of our jewelry lines and successfully develop new lines through our Company or through possible acquisitions and/or mergers. Our ability to obtain capital through additional equity and/or debt financing, and joint venture partnerships will also be important to our expansion plans. In the event we experience any significant problems assimilating acquired assets into our operations or cannot obtain the necessary capital to pursue our strategic plan, we may have to reduce the growth of our operations. This may materially impact our ability to increase revenue and continue our growth.

Over the next twelve months we believe that our existing capital combined with cash flow from operations and advances from our major stockholder will be sufficient to sustain our current operations.  However, in the event we locate potential acquisitions and/or mergers we will most likely need to obtain additional funding through the sale of equity and/or debt securities. There can be no assurance that if additional funding is required we will be able to secure it on terms that are favorable to us or at all.

Research and Development

We are not anticipating significant research and development expenditures in the near future.

Expected Purchase or Sale of Plant and Significant Equipment

We do not anticipate the purchase or sale of any plant or significant equipment; as such items are not required by us at this time.

Significant Changes in the Number of Employees

We currently have three full-time employees and three part-time employees.  Of our current employees, one is in sales and marketing p, two are manufacturing and three hold administrative and executive positions.  None of our employees are subject to any collective bargaining agreements.  We do not anticipate a significant change in the number of full time employees over the next 12 months.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results or operations, liquidity, capital expenditures or capital resources that is deemed material.

14

Critical Accounting Policies

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements in accordance with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reported period.

Our critical accounting policies are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC on April 15, 2014 (the “Annual Report”). There have been no changes in our critical accounting policies. Our significant accounting policies are described in our notes to the 2014 consolidated financial statements included in our Annual Report.

Recently Issued Accounting Standards

For the three months ended March 31, 2014, there have been no significant accounting pronouncements or changes in accounting pronouncements that have become effective that are expected to have a material impact on the Company’s financial position, operations or cash flows.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We do not hold any derivative instruments and do not engage in any hedging activities.

Item 4.  Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide a reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Management designed the disclosure controls and procedures to provide reasonable assurance of achieving the desired control objectives.

We carried out an evaluation, under the supervision and with the participation of our management, including our PEO and PFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the PEO and PFO concluded that the Company’s disclosure controls and procedures were ineffective.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

15

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

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.

Item 1A.  Risk Factors.

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on April 15, 2014.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended March 31, 2014, we have issued the following securities which were not registered under the Securities Act.  Unless otherwise indicated, all of the share issuances described below were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act for transactions not involving a public offering.

On January 15, 2014, we issued 101,950,678 shares of common stock valued at $16,708 to John M. Fife (“Fife”) for conversion of its convertible debt and accrued interest.

On January 24, 2014, we issued 86,422,331 shares of common stock valued at $14,087 to Fife for conversion of its convertible debt and accrued interest.

On January 24, 2014, we issued 145,000,000 shares of common stock valued at $20,300 to Asher Enterprises, Inc. (“Asher”) for conversion of its convertible debt.

On February 4, 2014, we issued 107,000,000 shares of common stock valued at $12,840 to Asher for conversion of its convertible debt.

On February 5, 2014, we issued 156,666,667 shares of common stock valued at $18,800 to Asher for conversion of its convertible debt.

On February 7, 2014, we issued 114,500,000 shares of common stock valued at $16,030 to Fife for conversion of its convertible debt and accrued interest.

On February 14, 2014, we issued 95,833,333 shares of common stock valued at $11,500 to Asher for conversion of its convertible debt.

On February 21, 2014, we issued 200,000,000 shares of common stock valued at $24,000 to Asher for conversion of its convertible debt.

On February 26, 2014, we issued 100,000,000 shares of common stock valued at $14,000 to Auctus Private Equity Fund, LLC (“Auctus”) for conversion of its convertible debt.

On February 26, 2014, we issued 50,000,000 shares of common stock valued at $8,750 to Auctus for conversion of its convertible debt.

On February 27, 3014, we issued 103,500,000 shares of common stock valued at $16,560 to Asher for conversion of its convertible debt and accrued interest.

On February 28, 2014, we issued 102,700,714 shares of common stock valued at $14,378 to Fife for conversion of its convertible debt.

On February 28, 2014, we issued 125,000,000 shares of common stock and warrants valued at $50,000 to ARRG.

On February 28, 2014, we issued 125,000,000 shares of common stock and warrants valued at $50,000 to Caesar Capital Group.

On March 12, 3014, we issued 80,000,000 shares of common stock valued at $56,000 to TCA Global Credit Master Fund, LP in exchange for investment banking fees.

On March 12, 2014, we issued 69,918,548 shares of common stock valued at $39,280 to Proteus Capital (Fife) (“Proteus”) for conversion of its convertible debt.

On March 12, 2014, we issued 156,396,000 shares of common stock valued at $18,768 to Proteus for conversion of its convertible debt.

16

On March 13, 3014, we issued 42,034,045 shares of common stock valued at $18,069 to Fife for conversion of its convertible debt.

On March 26, 2014, we issued 181,279,000 shares of common stock valued at $48,945 to Proteus for conversion of its convertible debt.

Item 3.  Defaults upon Senior Securities.

There has been no default in payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

Item 4.  Mine Safety Disclosure.

Not applicable.

Item 5.  Other Information.

Not applicable.

Item 6.  Exhibits.

* Filed herewith

17

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

18