PINX:BTZO Bitzio Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2012
 
OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to ________
 
Commission file number 000-51688
 
BITZIO, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
16-1734022
(State or other jurisdiction
 
(I.R.S. Employer
of incorporation or organization)
 
Identification Number)
 
548 Market Street, Suite 18224 San Francisco, CA
(Address of principal executive offices)
 
(213) 400-0770
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes o  No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated file. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x
(Do not check if a smaller reporting company)
   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:63,414,821 shares of common stock, par value $0.001 per share, outstanding as of August 14, 2012.  
 


 
 

 
BITZIO, INC.
 
- INDEX -
 
   
Page
 
PART I – FINANCIAL INFORMATION:
     
         
Item 1.
Financial Statements:
    1  
           
 
Condensed Consolidated Balance Sheets
    2  
           
 
Condensed Consolidated Statements of Operations
    3  
           
 
Condensed Consolidated Statements of Cash Flows
    4  
           
 
Notes to Condensed Consolidated Financial Statements
    5  
           
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    16  
           
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
    23  
           
Item 4.
Controls and Procedures
    24  
           
PART II – OTHER INFORMATION:
       
           
Item 1.
Legal Proceedings
    25  
           
Item 1A.
Risk Factors
    25  
           
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    25  
           
Item 3.
Defaults Upon Senior Securities
    26  
           
Item 4.
Mine Safety Disclosures
    26  
           
Item 5.
Other Information
    26  
           
Item 6.
Exhibits
    27  
           
Signatures
      28  
 
 
 

 
 
PART I – FINANCIAL INFORMATION
 
Item 1.Financial Statements.
 
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”).  These statements are based on management’s beliefs and assumptions, and on information currently available to management.  Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.

 Forward-looking statements are not guarantees of future performance.  They involve risks, uncertainties and assumptions.  Our future results and shareholder values may differ materially from those expressed in these forward-looking statements.  Readers are cautioned not to put undue reliance on any forward-looking statements.

The results for the period ended June 30, 2012 are not necessarily indicative of the results of operations for the full year. These financial statements and related footnotes should be read in conjunction with the financial statements and footnotes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 29, 2012.
 
 
1

 
 
BITZIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
June 30,
 
December 31,
 
 
2012
 
2011
 
 
(Unaudited)
       
ASSETS
 
             
CURRENT ASSETS
           
Cash
  $ 55,637     $ 181,725  
Accounts receivable, net
    200,368       92,232  
Prepaid expenses and other current assets
    547,371       337,508  
Due from related parties
    144,305       228,980  
Prepaid acquisition costs
    -       713,150  
                 
    Total current assets
    947,681       1,553,595  
                 
OTHER ASSETS
               
Property and equipment, net
    72,602       -  
Intangible assets, net
    1,685,718       582,424  
Goodwill
    774,047       627,134  
                 
    Total other assets
    2,532,367       1,209,558  
                 
    TOTAL ASSETS
  $ 3,480,048     $ 2,763,153  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
                 
CURRENT LIABILITIES
               
Accounts payable and accrued expenses
  $ 1,218,097     $ 253,976  
Deferred revenue
    61,998       77,433  
Notes payable, related parties
    351,870       426,870  
Notes payable
    116,472       -  
Convertible notes, related parties, net of discount
    -       5,068  
Convertible notes, net of discount
    47,890       65,677  
                 
    TOTAL CURRENT LIABILITIES
    1,796,327       829,024  
                 
STOCKHOLDERS' EQUITY
               
Preferred stock, $0.001 par value; 25,000,000 shares authorized; 5,343,120 and -0- shares issued and outstanding, respectively
    5,343       -  
Common stock, $0.001 par value; 250,000,000 shares authorized; 62,084,821 and 50,018,625 shares issued and outstanding, respectively
    62,085       50,019  
Stock subscriptions payable
    123,000       186,000  
Additional paid-in capital
    18,268,071       11,800,050  
Accumulated other comprehensive income
    330       -  
Accumulated deficit
    (16,775,108 )     (10,101,940 )
                 
    Total stockholders’ equity
    1,683,721       1,934,129  
                 
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 3,480,048     $ 2,763,153  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
2

 

BITZIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
REVENUES
                       
Developer tools revenue
  $ 205,180     $ -     $ 634,108     $ -  
Mobile apps and other revenue
    254,722       -       365,207       -  
    Total Revenue
    459,902       -       999,315       -  
                                 
OPERATING EXPENSES
                               
Professional fees
    692,703       13,888       2,637,351       19,128  
Executive compensation
    -       -       127,500       -  
General and administrative
    384,662       19,512       768,270       23,206  
Impairment of goodwill
    3,981,508       -       3,981,508       -  
    Total Operating Expenses
    5,058,873       33,400       7,514,629       42,334  
                                 
        LOSS FROM OPERATIONS
    (4,598,971 )     (33,400 )     (6,515,314 )     (42,334 )
                                 
OTHER EXPENSES
                               
Interest expense
    (59,331 )     (246 )     (157,854 )     (246 )
                                 
    Total Other Expenses
    (59,331 )     (246 )     (157,854 )     (246 )
                                 
LOSS BEFORE INCOME TAXES
    (4,658,302 )     (33,646 )     (6,673,168 )     (42,580 )
PROVISION FOR INCOME TAXES
    -       -       -       -  
                                 
NET LOSS
  $ (4,658,302 )   $ (33,646 )   $ (6,673,168 )   $ (42,580 )
                                 
BASIC AND DILUTED LOSS PER SHARE
  $ (0.08 )   $ (0.00 )   $ (0.12 )   $ (0.00 )
                                 
BASIC AND DILUTED WEIGHTED AVERAGE
                               
   NUMBER OF SHARES OUTSTANDING
    57,231,252       33,090,659       54,123,299       33,045,580  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
3

 
 
BITZIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
For the Six Months Ended
 
   
June 30,
 
   
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
   
 
 
Net Loss
  $ (6,673,168 )   $ (42,580 )
Adjustments to reconcile net loss to net cash used by operating activities:
               
    Services contributed by officers and shareholders
    -       1,500  
    Depreciation and amortization
    332,918       341  
    Amortization of debt discounts on convertible notes
    129,645       -  
    Common stock issued for prepayment of debenture
    20,272       -  
    Common shares issued for services
    361,286       -  
    Impairment of goodwill
    3,981,508       -  
    Stock options issued for services
    893,928       -  
Changes in operating assets and liabilities:
               
    Accounts receivable
    (51,105 )     -  
    Prepaid expenses
    19,680       108  
    Due from related parties
    209,875       -  
    Accounts payable and accrued expenses
    231,414       294  
    Deferred revenue
    (52,634 )     -  
        Net Cash Used in Operating Activities
    (596,381 )     (40,337 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Cash acquired in acquisition of subsidiary
    20,959       -  
    Net Cash Provided by Investing Activities
    20,959       -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Advance (Repayments) on notes payable - related parties
    (75,000 )     25,000  
Repayments on notes payable
    (27,524 )     -  
Repayments on convertible debenture
    (26,250 )     -  
Proceeds from sale of common stock
    450,000       -  
Proceeds from sale of preferred stock
    5,108       -  
Proceeds from stock subscriptions payable
    123,000       -  
    Net Cash Provided by Financing Activities
    449,334       25,000  
                 
NET DECREASE IN CASH
    (126,088 )     (15,337 )
CASH AT BEGINNING OF YEAR
    181,725       18,068  
                 
CASH AT END OF YEAR
  $ 55,637     $ 2,731  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
               
                 
CASH PAID FOR:
               
    Interest
  $ 21,334     $ -  
    Income taxes
  $ -     $ -  
                 
NON-CASH FINANCING AND INVESTING ACTIVITIES
               
    Notes payable and warrants issued for acquisition of subsidiary
  $ 713,150     $ -  
    Preferred stock issued for acquisition of subsidiary
  $
 2,084,231
    $ -  
Common stock issued for acquisition of subsidiary   $
2,145,000
    $ -  
    Common stock issued for prepaid services
  $ 213,357     $ 292,500  
    Issuance of common stock on debenture conversion
  $ 100,000     $ -  
    Common stock issued for stock subscriptions payable
  $ 186,000     $ -  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
4

 
 
BITZIO, INC.
 Notes to Condensed Consolidated Financial Statements
June 30, 2012 (Unaudited)
NOTE 1– ORGANIZATION

Bitzio, Inc. was originally formed as Rocky Mountain Fudge Company, Inc. (“the Company,” “we”) on January 4, 1990 as a Utah corporation.  On July 28, 1998, the Company converted from a Utah corporation to a Nevada corporation.  Effective June 10, 2011, the Company changed its name from Rocky Mountain Fudge Company, Inc. to Bitzio, Inc.  Pursuant to this transaction, shares of the Company’s common stock are now trading under the Company’s new trading symbol, BTZO.  Bitzio, Inc. is focused on smartphone applications, social media and marketing optimization.  We work directly with developers of mobile applications to improve their consumer reach, conversion rates, and profitability.

On July 27, 2011, Bitzio, Inc. and Bitzio, LLC. entered into a share exchange agreement wherein Bitzio, Inc. issued 5,000,000 shares of the Company's common stock in exchange for 100% of the members' equity of Bitzio, LLC.  Through this transaction Bitzio, LLC became a wholly owned subsidiary of Bitzio, Inc.

On November 9, 2011 Bitzio, Inc. and Thinking Drone, Inc., entered into a share exchange agreement wherein Bitzio, Inc. acquired all of the issued and outstanding stock of Thinking Drone, Inc.  Bitzio, Inc. received all of the outstanding shares of Thinking Drone in exchange for a $500,000 promissory note and 5,000,000 shares of Bitzio, Inc. common stock.  Through this transaction Thinking Drone, Inc. became a whollyowned subsidiary of Bitzio, Inc.

On January 10, 2012, Bitzio, Inc. and DigiSpace Solutions, LLC entered into a share exchange agreement wherein Bitzio, Inc. acquired all of the issued and outstanding member’s equity in exchange for $200,000 cash and 1,000,000 restricted stock options at an exercise price of $0.28 per share valued at $513,150.Through this transaction DigiSpace Solutions, LLC became a wholly owned subsidiary of Bitzio, Inc.

On May 23, 2012, Bitzio, Inc. and Motion Pixel Corporation Holdings entered into a share purchase agreement wherein Bitzio, Inc. acquired all of the issued and outstanding member’s equity in exchange for 6,500,000 shares of the Company's common stock valued at $2,145,000.

On June 4, 2012, Bitzio, Inc. and ACT Smartware GmbH entered into a share purchase agreement wherein Bitzio, Inc. acquired all of the issued and outstanding member’s equity in exchange for 3,300,000 Series A Convertible Redeemable Preferred shares of the Company valued at $2,084,231.

NOTE 2 - CONDENSED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at June 30, 2012 and for all periods presented have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2011 audited financial statements.  The results of operations for the periods ended June 30, 2012 and 2011 are not necessarily indicative of the operating results for the full years.
 
 
5

 

BITZIO, INC.
 Notes to Condensed Consolidated Financial Statements
June 30, 2012 (Unaudited)
 
NOTE 3 – GOING CONCERN

The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.  If the Company is unable to obtain adequate capital, it could be forced to cease operations.

In order to continue as a going concern, the Company will need, among other things, additional capital resources.  Management's plan is to obtain such resources for the Company by seeking equity and/or debt financing.  However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations.  The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
 
The consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries.  Intercompany balances and transactions have been eliminated upon consolidation.

In June 2011, we effected a four-for-one forward-split of the shares of our common stock.  All references to common stock activity in these financial statements have been retroactively restated so as to incorporate the effects of this stock-split.

Use of Estimates
 
The preparation of consolidated financial statements in conformity with the generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  The more significant estimates include, but are not limited to, the recognition of certain, valuation of intangible assets, goodwill and long-lived asset impairment charges, stock-based compensation, loss contingencies and the allowance for doubtful accounts receivable.  Actual results could differ from those estimates.

Revenue Recognition
 
We derive our revenues from the sale of mobile applications through various platforms and through the sale of developer tools related to the mobile application industry.  We recognize revenue when all of the following conditions are satisfied: (i) there is persuasive evidence of an arrangement; (ii) delivery of the product or provision of the service has occurred; (iii) the fee is fixed or determinable; and (iv) collectability of the fee is reasonably assured.
 
Mobile Phone Applications

Mobile phone applications are sold using multiple platforms.  Each platform handles the sale, distribution or download, as well as the collection and remittance of payment for the company.  We recognize mobile application revenue net of the amounts retained by the platform companies.  There is no warranty or money-back guarantee related to the sale of mobile phone applications, therefore no deferred revenue or allowance for sales returns has been recorded
 
 
6

 

BITZIO, INC.
 Notes to Condensed Consolidated Financial Statements
June 30, 2012 (Unaudited)
 
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition (continued)
 
Developer Tools

Developer tools revenue represents the Company’s revenue derived from the sale of educational videos, webinars, e-books and other materials developed by the Company and sold to customers seeking to develop and sell mobile phone applications to end users.  Most of these products are sold with a 30-day money back guarantee.  Therefore, we recognize revenue from the sale of developer tools ratably over the term of the contract, usually six weeks. Cash receipts in advance of revenue recognized are recorded within deferred revenue.

Cash and Cash Equivalents
 
We consider all highly liquid investments with remaining maturities of three months or less at the date of purchase to be cash and cash equivalents.  Cash and cash equivalents consist primarily of money market funds and other short-term investments with original maturities of not more than three months stated at cost, which approximates market value.

Accounts Receivable and Allowance for Doubtful Accounts
 
Accounts receivable are presented at their face amount, less an allowance for doubtful accounts, on the consolidated balance sheets. Accounts receivable consist of revenue earned and currently due from customers.  We evaluate the collectability of accounts receivable based on a combination of factors.  We recognize reserves for bad debts based on estimates developed using standard quantitative measures which incorporate historical write-offs and current economic conditions.

Goodwill
 
Goodwill represents the excess of the purchase price of an acquired enterprise or assets over the fair value of the identifiable net assets acquired. We test goodwill for impairment in each quarter of the year, and whenever events or changes in circumstances arise during the year that indicate the carrying amount of goodwill may not be recoverable. In evaluating whether an impairment of goodwill exists, we first compare the estimated fair value of a reporting unit against its carrying value. If the estimated fair value is lower than the carrying value, then a more detailed assessment is performed comparing the fair value of the reporting unit to the fair value of the assets and liabilities plus the goodwill carrying value of the reporting unit. If the fair value of the reporting unit is less than the fair value of its assets and liabilities plus goodwill, then an impairment charge is recognized to reduce the carrying value of goodwill by the difference. The gross amount of goodwill at June 30, 2012 was $7,106,355 (December 31, 2011 - $2,977,934) with accumulated impairment of $6,332,308 (December 31, 2011 - $2,350,800). The net amount of goodwill at June 30, 2012 was $774,047 (December 31, 2011 - $627,134).

During the six months ended June 30, 2012, we recorded an impairment charge totaling $3,981,508 million related to purchased goodwill whose carrying amount exceeded its implied fair value (December 31, 2011 - $2,350,800).

Software Development Costs
 
We capitalize costs incurred during the application development stage relating to the development of our mobile applications. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. We capitalized $54,119 and $-0- in software development costs for the six-month period ended June 30, 2012 and for the year ended December 31, 2011, respectively. These costs will be amortized over a period of three years. Prior to 2011, costs incurred during the application development stage were not material and were expensed as incurred.
 
 
7

 

BITZIO, INC.
 Notes to Condensed Consolidated Financial Statements
June 30, 2012 (Unaudited)
 
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Business Acquisitions
 
Business acquisitions are accounted for under the purchase method of accounting.  Under that method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of the acquisition, with any excess of the cost of the acquisition over the estimated fair value of the net tangible and intangible assets acquired recorded as goodwill.  We make significant judgments and assumptions in determining the fair value of acquired assets and assumed liabilities, especially with respect to acquired intangibles.  Using different assumptions in determining fair value could materially impact the purchase price allocation and our financial position and results of operations.  Results of operations for acquired businesses are included in the consolidated financial statements from the date of acquisition.
 
Net Loss per Share Attributable to Common Stockholders
 
Basic and diluted net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period.  Our potentially dilutive shares, which include outstanding common stock options, common stock warrants and convertible debentures, have not been included in the computation of diluted net loss per share attributable to common stockholders for all periods presented, as the results would be anti-dilutive.  Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share.  There were 2,704,000 such potentially dilutive shares excluded as of June 30, 2012.

Fair Value of Financial Instruments
 
As of June 30, 2012 and December 31, 2011, cash and cash equivalents were comprised of cash in bank accounts and money market funds totaling $55,637 and $181,725, respectively.  In addition, the carrying amount of certain financial instruments, including accounts receivable, accounts payable and accrued expenses approximates fair value due to their short maturities.

Concentration of Credit Risk
 
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, to the extent balances exceed limits that are insured by the Federal Deposit Insurance Corporation, and accounts receivable.

At June 30, 2012, two customers comprised more than 83 percent of accounts receivable.  At December 31, 2011, one customer comprised 85 percent of accounts receivable.

Recent Accounting Pronouncements
 
The Company has evaluated recent pronouncements and does not expect their adoption to have a material impact on the Company’s financial position, or statements.
 
NOTE 5 – ACQUISITION OF SUBSIDIARIES

DigiSpace Solutions, LLC Acquisition

On January 10, 2012, Bitzio Inc. and DigiSpace Solutions, LLC entered into a share exchange agreement wherein Bitzio, Inc. acquired all of the issued and outstanding members’ equity in exchange for $200,000 in cash and 1,000,000 restricted stock options at an exercise price of $0.28 per share valued at $513,150.  Through this transaction DigiSpace Solutions, LLC became a wholly owned subsidiary of Bitzio, Inc.

The assets and liabilities of DigiSpace Solutions, LLC as of the acquisition date will be recorded at their estimated fair value. A preliminary allocation of the purchase price is as follows:
 
 
8

 

BITZIO, INC.
 Notes to Condensed Consolidated Financial Statements
June 30, 2012 (Unaudited)
 
NOTE 5 – ACQUISITION OF SUBSIDIARIES (CONTINUED)

DigiSpace Solutions, LLC Acquisition (continued)

Cash and cash equivalents
  $ 12,830  
Customer List
    1,381,545  
    Total assets acquired
    1,394,375  
         
Accounts payable
    501,706  
Deferred revenue
    35,523  
Notes payable
    143,996  
    Total liabilities acquired
    681,225  
     Net assets acquired
  $ 713,150  

Motion Pixel Corporation Holdings Acquisition

On May 23, 2012, Bitzio, Inc. and Motion Pixel Corporation Holdings entered into a share purchase agreement wherein Bitzio, Inc. acquired all of the issued and outstanding member’s equity in exchange for 6,500,000 shares of the Company's common stock valued at $2,145,000.

The assets and liabilities of Motion Pixel Corporation Holdings as of the acquisition date will be recorded at their estimated fair value. A preliminary allocation of the purchase price is as follows:

Equipment
  $ 60,000  
Goodwill
    2,145,000  
    Total assets acquired
    2,205,000  
         
Accounts payable
    60,000  
    Total liabilities acquired
    60,000  
     Net assets acquired
  $ 2,145,000  

ACT Smartware GmbH Acquisition

On June 4, 2012, Bitzio, Inc. and ACT Smartware GmbH entered into a share purchase agreement wherein Bitzio, Inc. acquired all of the issued and outstanding member’s equity in exchange for 3,300,000 Series A Convertible Redeemable Preferred shares of the Company valued at $2,084,231.
 
 
9

 

BITZIO, INC.
 Notes to Condensed Consolidated Financial Statements
June 30, 2012 (Unaudited)
 
NOTE 5 – ACQUISITION OF SUBSIDIARIES (CONTINUED)
 
The assets and liabilities of ACT Smartware GmbH as of the acquisition date will be recorded at their estimated fair value. A preliminary allocation of the purchase price is as follows:

Cash and cash equivalents
  $ 8,129  
Accounts receivable
    57,031  
Prepaids
    16,186  
Intangible assets
    53,422  
Equipment
    12,983  
Goodwill
    2,061,120  
    Total assets acquired
    2,208,871  
         
Accounts payable
    122,964  
Deferred revenue
    1,676  
    Total liabilities acquired
    124,640  
     Net assets acquired
  $ 2,084,231  

NOTE 6–INTANGIBLE ASSETS

Goodwill

During the six months ended June 30, 2012, our goodwill impairment test indicated write-downs would be required for our two latest acquisitions. Goodwill impairment is calculated as the difference between the fair value of the assets and liabilities of the reporting unit, including the carrying value of its goodwill, to the reporting unit’s fair value, measured by an income approach utilizing projected discounted cash flows.
 
We acquired MPC for its high-end media and animation capabilities.  We also plan to secure digital rights to animated versions of the world-renowned athletes and stars with which MPC has relationships.  However, a key criterion of the impairment test is historic operating performance.  MPC, as a recent start-up, had limited operating history at the time of acquisition.  As such, according to GAAP, we are required to record a goodwill impairment charge of $2,145,000.
 
ACT Smartware GmbH is a European company with a stable profitable history in the software and mobile apps sector.  In addition, their talented principals bring a high-level of innovation and talent to Bitzio.  However, despite the international expansion, added talent, stable earnings history, and early mobile app portfolio, we applied a conservative approach of the goodwill impairment test focused on historic operating performance.   Accordingly, we recorded a goodwill impairment charge of $1,836,508 against the purchased goodwill of $2,061,120.
 
During the year ended December 31, 2011, our goodwill impairment test indicated that future revenues from the acquisition of Bitzio, LLC would not support the carrying value of the associated goodwill.  We acquired Bitzio, LLC for its 4,000 mobile app roadmap which the Company plans to use in the future and for its key personnel.  However, a key criterion of the impairment test is historic operating performance.  Bitzio, LLC, as a recent start-up, had limited operating history at the time of acquisition.  As such, according to GAAP, we are required to record a goodwill impairment charge of $2,350,000.

Intangible Assets

In November 2011, we completed the purchase allocation related to the acquisition of Thinking Drone, Inc., which included a $611,461 adjustment to the fair value of acquired mobile applications and goodwill of $638,539.  The net carrying value of goodwill at December 31, 2011 and 2010 was $627,134 and $-0-, respectively.
 
 
10

 
 
 BITZIO, INC.
 Notes to Condensed Consolidated Financial Statements
June 30, 2012 (Unaudited)
 
NOTE 6–INTANGIBLE ASSETS (CONTINUED)
 
Intangible assets include assets capitalized as a result of our acquisitions and represent the valuation of the mobile application portfolio and customer list acquired based on net cash flows from the portfolio.  The components of intangible assets were as follows:

   
June 30,
   
December 31,
 
 
  
2012
   
2011
 
                 
Mobile App Portfolio (useful life – 3 years)
  
$
611,461
  
 
$
611,461
  
Customer List (useful life – 3 years)
  
 
1,381,545
     
-
 
Software Development Costs (useful life – 3 years)
  
 
54,119
     
-
 
Less: Accumulated Amortization
  
 
(361,407
)
   
(29,037
 
  
             
Intangible Assets, net
  
$
1,685,718
  
 
$
582,424
  

Amortization of intangible assetsis computed using the straight-line method and is recognized over the estimated useful lives of the intangible assets.  Amortizationexpense was $332,166 and $nil for the six months ended June 30, 2012 and 2011, respectively.

NOTE 7– RELATED PARTY TRANSACTIONS

Related party receivables

At June 30, 2012, the Company had an outstanding receivable balance of $144,305 (December 31, 2011 - $228,980) from related parties.

Related party payables

During the six months ended June 30, 2012 the Company repaid $75,000 of related party notes payable, leaving an ending balance in related party payables of $351,870.

During the fiscal year ended December 31, 2011 the Company borrowed $27,000 in cash from related parties, and $5,000 in operating expenses were paid on behalf of the Company by a related party.  The Company also executed $500,000 in additional notes payable to finance the business acquisitions.  The Company also repaid $105,380 of notes payable and transferred $142 to accrued liabilities leaving $426,870 in related party payables and accrued interest of $3,740 at December 31, 2011.  The components of related party payables are summarized in the table below:

 
June 30,
 
December 31,
 
 
2012
 
2011
 
                 
Note payable to related parties, bearing interest at 5.25%, secured by the common stock of the Company, due on October 31, 2012
    351,870       426,870  
                 
Total
  $ 351,870     $ 426,870  
 
 
11

 
 
 BITZIO, INC.
 Notes to Condensed Consolidated Financial Statements
June 30, 2012 (Unaudited)
 
NOTE 8– CONVERTIBLE NOTES PAYABLE

On November 24, 2011, the Company completed a non-brokered private placement unit offering that raised $180,000 in gross proceeds, $50,000 of which was received from related parties.  Each $1,000 unit consisted of one 8.5% unsecured convertible note and 2,000 shares of the Company’s common stock.  The notes have a 12-month term and are convertible into common shares of the Company at a price of $0.10 per share at any time prior to the maturity date, which is November 23, 2012.  The notes require interest only payments on a quarterly basis.  On June 30, 2012, $100,000 of the convertible notes was converted into 1,000,000 common shares of the Company.

The convertible notes contain provisions that will allow the Company to force conversion, if the lowest daily closing bid price of the Company’s Common Shares for each of the sixty-five (65) trading days immediately preceding the redemption notice is not less than $1.50 per such Common Share; or the Company completes one or more offerings of its Common Shares or securities convertible into Common Shares at a price or conversion price, as the case may be, of not less than $1.50 per such Common Share and the gross proceeds from such offering(s) total not less than $5,000,000.  At December 31, 2011, the lenders had advanced $180,000 under this financing agreement, $50,000 of which was received from related parties.

The intrinsic value of the beneficial conversion feature and the debt discount associated with the equity issued in connection with the convertible debts were recorded based on the relative fair value of the equity in relation to the debt in accordance with ASC 470.  The total initial beneficial conversion feature recorded for the convertible notes and on the equity equaled $125,874 and $54,126, respectively.  As of June 30, 2012, the Company has amortized $47,890 of the total outstanding debt discount leaving an unamortized debt discount of $32,110.

On December 8, 2011, the Company executed a convertible promissory note in the amount of $52,500.  The note bears interest at a rate of 8.0% per annum and has a maturity date of September 12, 2012.  Any amount of principal or interest not paid in full at maturity will bear an interest rate of 22 percent.  The convertible promissory note may be converted in whole or in part, at the option of the holder, to shares of common stock at any time following 180 days after the issuance date of the note.  The conversion price under the note is 59 percent multiplied by the market price (representing a 41 percent discount rate).  In June 2012, the note principal was fully repaid.  One half was paid in cash along with accrued interest of $1,007 and a prepayment premium of $13,125.  The other half of the note principal was repaid through the issuance of 171,750 shares of common stock of the Company.

The components of convertible notes payable are summarized in the table below:

   
June 30,
   
December 31,
 
   
2012
   
2011
 
             
Notes payable to a unrelated parties, bearing interest at 8.5%, unsecured, convertible into shares of common stock, due on November 23, 2012
  $ 80,000     $ 130,000  
Note payable to a related party, bearing interest at 8.5%, unsecured, convertible into shares of common stock, due on November 23, 2012
    -       50,000  
Note payable to an unrelated party, bearing interest at 8%, secured by the common stock of the Company, convertible into shares of common stock, due on September 12, 2012
    -       52,500  
Unamortized beneficial conversion feature on issuance of convertible debt
    (32,110 )     (161,755 )
                 
Total
  $ 47,890     $ 70,745  

NOTE 9 – PREFERRED STOCK

The Company is authorized to issue 25,000,000 shares of preferred stock, of which 2,500,000 shares are designated as series A convertible redeemable preferred stock with a par value of $0.001.  As of June 30, 2012 and December 31, 2011, there were 5,343,120 and -0- shares of series A convertible redeemable preferred stock issued and outstanding, respectively.  The shares have the following provisions:

Dividends
 
Series A convertible redeemable shares have no dividend rights.

Liquidation Preferences
 
In the event of liquidation, following the sale or disposition of all or substantially all of the Company’s assets, the holders of the Series A Convertible Redeemable Preferred Stock shall be entitled to receive, an amount equal to the per share price of the stock ($0.0025 per share) plus all declared and unpaid dividends.  

Voting Rights
 
Series A convertible redeemable shares have no voting rights.

Conversion
 
Each share of series A convertible redeemable preferred stock is convertible, at the option of the holder, at any time within four years of issue, and upon payment of $0.40 per share, into two fully paid and non-assessable shares of the Company’s common.
 
 
12

 

 BITZIO, INC.
 Notes to Condensed Consolidated Financial Statements
June 30, 2012 (Unaudited)
 
NOTE 9 – PREFERRED STOCK (CONTINUED)

Redemption
 
At any time after four years of issuance, the Company may redeem, at the discretion of the Board of Directors, any or all of the series A convertible redeemable preferred stock for the per share price of the stock ($0.0025 per share).

Preferred Stock Activity for the Six Month Period Ended June 30, 2012

On January 2, 2012, the Company issued 2,043,120 Series A Convertible Redeemable Preferred Stock at purchase price of $0.0025 per share for $5,108.

On June 4, 2012, the Company issued 3,300,000 Series A Convertible Redeemable Preferred Stock as consideration for the purchase of all of the outstanding shares of ACT Smartware GmbH (see Note 5).

NOTE 10– COMMON STOCK

The Company has authorized 250,000,000 shares of $0.001 par value per share Common Stock, of which 62,084,821 and 50,018,625 shares were issued outstanding as of June 30, 2012 and December 31, 2011.  The activity surrounding the issuances of the Common Stock is as follows: 

Six Months Ended June 30, 2012

During the six months ended June 30, 2012, the Company issued 1,171,750 shares of common stock at $0.13 per share upon the conversion of $152,500 of outstanding convertible debentures.  The Company issued 1,800,000 shares of common stock and warrants for net cash proceeds of $450,000 at $0.25 per share. The Company has allocated $180,550 of the total $450,000 net cash proceeds to the value of the warrants.  The Company issued 82,500 shares of common stock for services rendered to the Company valued at $33,000, based on the market price of the stock on the date of issuance.  The Company issued 744,000 shares of common stock and warrants to satisfy stock subscriptions obligations outstanding at December 31, 2011.

During the six months ended June 30, 2012, the Company issued 1,767,946shares of common stock issued in advance of services.  The value of $541,643wasbased on the market price on the date of issuance.  The value of these shares has been capitalized and will be recognized in expenses over the life of the agreements under which they were issued.  The Company also received $123,000 in cash for stock subscriptions payable.

On May 23, 2012, the Company agreed to issue 6,500,000 shares of common stock as consideration for the purchase of 100 percent of the outstanding shares of Motion Pixel Corporation Holdings (see Note 5).

Fiscal Year Ended December 31, 2011

During the fiscal year ended December 31, 2011, the Company issued 2,500,000 shares of common stock for net cash proceeds of $250,000 at $0.10 per share and 360,000 shares of common stock for cash and convertible notes payable of $180,000, of which $50,000 was received from related parties.  The Company issued 1,761,000 shares of common stock for services rendered to the Company valued at $513,731, based on the market price of the stock on the date of issuance.  The Company issued a total of 10,000,000 shares of common stock valued at $3,100,000 based on the market price of the stock on the date of issuance, and options to purchase 1,000,000 shares of common stock valued at $513,150 to acquire three wholly-owned subsidiaries, one of which was completed on January 10, 2012.

 
13

 
 
 BITZIO, INC.
 Notes to Condensed Consolidated Financial Statements
June 30, 2012 (Unaudited)
 
NOTE 10 – COMMON STOCK (CONTINUED)

During the fiscal year ended December 31, 2011, the Company issued 2,397,625 shares of common stock issued in advance of services.  The value being based on the market price on the date of issuance valued at $431,573.  The value of these shares has been capitalized and will be recognized in expenses over the life of the agreements under which they were issued.  The Company also received $186,000 in cash for stock subscriptions payable.  As of the date of this report, the Company has satisfied its obligations relating to the stock subscriptions payable through the issuance of 744,000 shares of common stock and warrants at $0.25 per share.

NOTE 11– STOCK OPTIONS AND WARRANTS

The following table summarizes all stock optionand warrant activity for the six months ended June 30, 2012:
 
   
Shares
   
Weighted-average
exercise Price
Per Share
 
                 
Outstanding, December 31, 2011
    19,648,462     $ 0.34  
Granted
    4,544,000       0.42  
Exercised
    -       -  
Forfeited
    (6,553,846 )     0.33  
Expired
    -       -  
                 
Outstanding, June 30, 2012
    17,638,616     $ 0.36  
                 
Exercisable at June 30, 2012
    17,638,616     $ 0.36  

The following table disclosesinformation regarding outstanding and exercisable options and warrants at June 30, 2012:
 
     
Outstanding
   
Exercisable
 
Range of Exercise
 Prices
   
Number of 
Option Shares
   
Weighted-
Average
Exercise Price
   
Remaining
Weighted-
Average
Contractual
Term (Years)
   
Number of 
Option Shares
   
Weighted-average
Exercise Price
 
                                             
$ 0.20 – $0.25       2,000,000     $ 0.20       4.4       2,000,000     $ 0.20  
$ 0.26 – $0.30       1,000,000       0.28       4.5       1,000,000       0.28  
$ 0.31 – $0.35       2,024,616       0.33       4.5       2,024,616       0.33  
$ 0.36 – $0.40       10,814,000       0.38       4.2       10,814,000       0.38  
$ 0.41– $0.50       1,800,000       0.50       4.8       1,800,000       0.50  
          17,638,616     $ 0.36       4.3       17,638,616     $ 0.36  
 
 
14

 

 BITZIO, INC.
 Notes to Condensed Consolidated Financial Statements
June 30, 2012 (Unaudited)
 
NOTE 11 – STOCK OPTIONS AND WARRANTS (CONTINUED)

In determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:
 
   
Year Ended
December 31,
2011
 
       
Expected term of options granted
 
5 years
 
Expected volatility range
    211 – 229 %
Range of risk-free interest rates
    0.81 – 1.80 %
Expected dividend yield
    0 %

Stock-based compensation expense associated with stock options issued during the six months ended June 30, 2012, and 2011 was $893,928 and $-0-, respectively.

NOTE 12 – SUBSEQUENT EVENTS

During the subsequent period, the Company issued 2,730,000 options to purchase common stock at an exercise price of $0.25 per share to certain management and staff of Motion Pixel Corporation Holdings.  The Company also agreed to issue 930,000 shares of common stock in advance of services.

During the subsequent period, the Company executed a convertible note payable in the amount of $73,500.

In accordance with ASC 855-10, the Company’s management has reviewed all material events and there are no other material subsequent events to report.
 
 
15

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

Although the forward-looking statements reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

Summary Overview

Bitzio, Inc. ("Bitzio" or the "Company") is a leading mobile media and app development company focused on connecting fans of large entertainment and sports properties with the players, celebrities and teams they love. What makes Bitzio really different is our approach. Most app companies build first and hope the audience will come. Bitzio licenses media rights of sports and entertainment properties that already have millions of existing fans.  We then leverage these rights to create mobile apps and web experiences for these existing fan bases.

The mobile applications market is growing rapidly - experts predict 100% annual growth driving revenue from $10.2 billion in 2010 to $100 billion in 2015.Bitzio is uniquely positioned to address this growth market by offering superior quality apps for existing communities of fans.  By leveraging media rights to deliver relevant experiences we allow fans to deepen their engagement with their favorite clubs and star players.  We allow fans to get in the game with the stars they love, while we collect powerful analytical information for targeted cross selling, which is extremely attractive to advertisers and sponsors.

We believe that the combination of those tangible assets, our approach and our experienced management team increases our likelihood of execution and we aim to be responsible for the download of 1 billion apps by 2014.

Acquisitions

On July 27, 2011, we acquired Bitzio Corp., a developer of mobile applications for smartphones, which is now operated as Bitzio Mobile Apps, Inc. Bitzio Mobile Apps has developed over 140 mobile applications with over 650,000 downloads in total and is in the process of developing 4,000 additional mobile applications. The company was founded by Amish Shah in November 2010 and generated application download revenue in its first month of operation.

On November 9, 2011, we acquired Thinking Drone, Inc., a developer of iPhone and Android apps under the “Free the Apps” brand. Founded in 2009, Free the Apps has created many highly successful apps, including "Top 10" overall apps featured in iTunes App Store. Their success is not only creating top revenue generating apps but also using that acumen to help other developers get the visibility their apps need in the crowded mobile apps space. Using proven strategies, Free the Apps provides developers with social and online solutions to get their apps in a “top” list and extend their reach to extensive customer base. With almost 40 million downloads and counting, some of Free the Apps highly successful free apps includes Convert Units for Free and Crop for Free.

 
16

 
 
On January 10, 2012, we acquired DigiSpace Solutions, LLC, an online performance-based advertising company offering a variety of services to assist in the development of a company’s online presence, marketing, tracking and customer management.  It provides proprietary web technologies to power online strategies and solutions.

On May 23, 2012, Bitzio, Inc. and Motion Pixel Corporation Holdings entered into a share purchase agreement wherein Bitzio, Inc. acquired all of the issued and outstanding member’s equity in exchange for 6,500,000 shares of the Company's common stock valued at $2,145,000.

On June 4, 2012, Bitzio, Inc. and ACT Smartware GmbH entered into a share purchase agreement wherein Bitzio, Inc. acquired all of the issued and outstanding member’s equity in exchange for 3,300,000 Series A Convertible Redeemable Preferred shares of the Company valued at $2,084,231.

Going Concern

As a result of our financial condition, our auditors have indicated in a footnote to our financial statements of June 30, 2012 describing the uncertainty as to our ability to continue as a going concern. In order to continue as a going concern we must effectively balance many factors and begin to generate revenue so that we can fund our operations from our sales and revenues. If we are not able to do this we may not be able to continue as an operating company. There is no assurance that our existing cash flow will be adequate to satisfy our existing operating expenses and capital requirements.

Six months ended June 30, 2012and 2011

Results of Operations

Introduction
Our revenues for the six months ended June 30, 2012 were $999,315, compared to zero for the six months ended June 30, 2011. We had very little operations in the first nine months of fiscal 2011, and thus comparisons between 2012 and 2011 are dramatic.  In the three months ended December 31, 2011, our revenues were $579,386.

Revenues and Net Operating Income (Loss)
Our revenues, operating expenses, and net loss for the six months ended June 30, 2012 and 2011 were as follows:

   
Six months ended June 30, 
2012
   
Six months ended June 30, 
2011
   
Increase /
(Decrease)
 
                   
Revenue
  $ 999,315     $ -     $ N/A  
Operating expenses:
                       
  Professional fees
    2,637,351       19,128       13,688 %
  Executive compensation
    127,500       -       N/A  
  General and administrative
    768,270       23,206       3,211 %
  Impairment expense
    3,981,508       -       N/A  
Total operating expenses
    7,514,629       42,334       8,246 %
                         
Loss from operations
    (6,515,314 )     (42,334 )     5,885 %
  Other expense
    (157,854 )     (246 )     64,068 %
Taxes
    -       -       N/A  
                         
Net loss
  $ (6,673,168 )   $ (42,580 )     15,572 %

 
 
17

 
 
Revenues

For the six months ended June 30, 2012, we had revenues of $999,315, compared to zero for the six months ended June 30, 2011. The increase in revenues is a result of the five completed corporate acquisitions starting in July 2011.Our revenues are segmented into developer tools revenue of $634,108 and mobile apps and other revenue of $365,207.

Operating Expenses

Our operating expenses consisted of professional fees of $2,637,351, executive compensation of $127,500, and general and administrative expenses of $768,270.  At the end of June 2012, certain executives agreed to waive $540,000 of earned and unpaid compensation for the six months ended June 30, 2012.  In addition, certain executives agreed to forfeit 6,553,846 stock options that were previously charged to operations at a valuation of $2,576,727.

In order to manage our cash flow, the Company uses its common stock as consideration in certain transactions.  Professional fees include $893,928 of non-cash stock option compensation. In order to attract and retain highly skilled staff for a start-up company in the highly competitive mobile applications industry, we offered stock optionsat a level necessary to ensure that key skilled resources were retained to meet early development milestones. As we achieve milestones and profitability, it is expected that use of equity incentives will decrease significantly.  Certain professional fees totaling $374,143 were paid through the issuance of common stock of the Company.

Impairment of Goodwill

During the six months ended June 30, 2012, our goodwill impairment test indicated write-downs would be required for our two latest acquisitions.   Goodwill impairment is calculated as the difference between the fair value of the assets and liabilities of the reporting unit, including the carrying value of its goodwill, to the reporting unit’s fair value, measured by an income approach utilizing projected discounted cash flows.

We acquired MPC for its high-end media and animation capabilities.  We also plan to secure digital rights to animated versions of the world-renowned athletes and stars with which MPC has relationships.  However, a key criterion of the impairment test is historic operating performance. MPC, as a recent start-up, had limited operating history at the time of acquisition. As such, according to GAAP, we are required to record a goodwill impairment charge of $2,145,000.

ACT Smartware is a European company with a stable profitable history in the software and mobile apps sector.  In addition, their talented principals bring a high-level of innovation and talent to Bitzio.  However, despite the international expansion, added talent, stable earnings history, and early mobile app portfolio, we applied a conservative approach of the goodwill impairment test focused on historic operating performance.  Accordingly, we recorded a goodwill impairment charge of $1,836,508 against the purchased goodwill of $2,061,120.

Loss from Operations
 
Our loss from operations was $6,515,314 for the six months ended June 30, 2012, compared to a loss from operations of $42,334 for the six months ended June 30, 2011.

Other Expense

We had other expense of $157,854 for the six months ended June 30, 2012, consisting of interest expense, compared to $246 for the six months ended June 30, 2011.

Net Loss

Our net loss for the six months ended June 30, 2012 was $6,673,168, compared to a net loss of $42,580 for the six months ended June 30, 2011. The increase in net loss was primarily a function of 2012 non-cash charges for goodwill impairment of $3,981,508, stock option compensation expense of $893,928, depreciation and amortization expense of $332,918, convertible debenture accounting charges of $149,917 and professional fees paid with stock of $361,286. Excluding these significant non-cash items, our net loss for the six months ended June 30, 2012 was $953,611.
 
 
18

 

Subsequent events

During the subsequent period, the Company issued 2,730,000 options to purchase common stock at an exercise price of $0.25 per share to certain management and staff of MPC.  The Company also agreed to issue 930,000 shares of common stock in advance of services.

During the subsequent period, the Company executed a convertible note payable in the amount of $73,500.

In accordance with ASC 855-10, the Company’s management has reviewed all material events and there are no other material subsequent events to report.

Non-GAAP Financial Measures

We monitor our performance as a business using adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss)before interest expense, provision for income taxes, depreciation and amortization, stock-based compensation expense, stock-based service payments, restructuring expenses and asset impairments, interest income and other income (expense), net. Adjusted EBITDA is not a measure of liquidity calculated in accordance with U.S. GAAP, and should be viewed as a supplement to, not a substitute for, our results of operations presented on the basis of U.S.GAAP. Adjusted EBITDA do not purport to represent cash flow provided by, or used in, operating activities as defined by U. S. GAAP. Our statement of cash flows presents our cash flow activity in accordance with U.S. GAAP. Furthermore, Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies.

A reconciliation of Adjusted EBITDA to net income (loss) from continuing operations for the six months ending June 30, 2012 follows:

Net loss
  $ (6,673,168 )
Impairment of goodwill
    3,981,508  
Stock-based compensation expense
    893,928  
Stock-based service payment
    361,286  
Interest and other income (expense), net
    157,854  
Depreciation and amortization
    332,918  
         
Adjusted EBITDA
  $ (945,674 )

We believe Adjusted EBITDA is used by and is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We believe that:

·  
EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired; and
·  
investors commonly use Adjusted EBITDA to eliminate the effect of restructuring and stock-based compensation expenses, which vary widely from company to company and impair comparability.

 
19

 
 
We use Adjusted EBITDA:

·  
as a measure of operating performance to assist in comparing performance from period to period on a consistent basis;
·  
as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; and
·  
in communications with the board of directors, stockholders, analysts and investors concerning our financial performance.

Liquidity and Capital Resources

Introduction

Our principal needs for liquidity have been to fund operating losses, working capital requirements, acquisitions, and debt service. Our principal source of liquidity as of June 30, 2012 consisted of cash of $55,637. We expect that working capital requirements and acquisitions will continue to be our principal needs for liquidity over the near term. Working capital requirements are expected to increase as a result of our anticipated growth, both organically and through future acquisitions.

We have not yet established an ongoing source of revenues sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to cease operations. Management's plan is to obtain such resources from management and significant shareholders sufficient to meet our minimal operating expenses and to seek equity and/or debt financing. However management cannot provide any assurances that we will be successful in accomplishing any of our plans.

Our cash, current assets, total assets, current liabilities, and total liabilities as of June 30, 2012 and December 31, 2011, respectively, are as follows:
 
   
June 30,
2012
   
December 31,
2011
    Change  
                   
Cash
  $ 55,637     $ 181,725     $ (126,088 )
Total Current Assets
    947,681       1,553,595       (605,914 )
Total Assets
    3,480,048       2,763,153       716,895  
Total Current Liabilities
    1,796,327       829,024       967,303  
Total Liabilities
    1,796,327       829,024       967,303  

Our cash decreased from $181,725 as of December 31, 2011 to $55,637 as of June 30, 2012 as a result of our operating loss.  Total current assets decreased as prepaid acquisition costs at December 31, 2011 were re-classified to intangible assets upon the successful completion of the acquisition of DigiSpace Solutions, LLC on January 10, 2012.  The DigiSpace acquisition also increased our liabilities as we assumed up to $575,000 of DigiSpace’s outstanding liabilities.  Certain members of management have deferred a portion of their fees resulting in an increase to liabilities of $235,000.

Cash Requirements

We had cash available as of June 30, 2012 of $55,637. Based on our current revenues, cash on hand, and our current net monthly burn rate of approximately $165,000, we will need to continue to raise money from the sales of our securities to fund operations.
 
 
20

 

Sources and Uses of Cash

Operations

Our net cash used in operating activities was $596,381 for the six months ended June 30, 2012, compared to $40,337 for the six months ended June 30, 2011. The increase is a result of operations from our four acquisitions.
 
For the six months ended June 30, 2012, our net cash used in operating activities consisted of our net loss of $6,673,168, offset primarily by goodwill impairment of $3,981,508, stock options issued for services of $893,928, depreciation and amortization expense of $332,918, convertible debenture accounting charges of $149,917, and common shares issued for services of $361,286.

Investments

Our net cash provided by investing activities was $20,959 for the six months ended June 30, 2012, compared to $nil for the six months ended June 30, 2011. The increase is a result of the acquisitions of DigiSpace Solutions, LLC and ACT Smartware GmbH.

Financing

Our net cash provided by financing activities was $449,334 for the six months ended June 30, 2012, compared to $25,000 for the six months ended June 30, 2011.

For the six months ended June 30, 2012, our net cash provided by financing activities consisted primarily of proceeds from the sale of common stock of $450,000, proceeds from stock subscription payable of $123,000 and the proceeds from the sale of preferred stock of $5,108, offset in part by repayments on notes payable to related parties of $75,000 and repayment of other debt of $53,774.

Contractual obligations and other commitments

We have no commitments under operating leases or rental agreements.

Off-balance sheet arrangements

As of June 30, 2012, 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, changes in financial condition, revenues or expenses, results of operations, liquidity, capital resources that are material to investors.

Critical accounting policies and estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions.
 
 
21

 

The following critical accounting policies are those accounting policies that, in our view, are most important in the portrayal of our financial condition and results of operations. Our critical accounting policies and estimates include those involved in recognition of revenue, business combinations, valuation of goodwill, valuation of long-lived and intangible assets, provision for income taxes, and accounting for stock-based compensation. Note 3 to our financial statements included elsewhere in this annual report on Form 10-K provides additional information about these critical accounting policies, as well as our other significant accounting policies.

Revenue Recognition

We derive our revenues from the sale of mobile applications through various platforms and through the sale of developer tools related to the mobile application industry. We recognize revenue when all of the following conditions are satisfied: (i) there is persuasive evidence of an arrangement; (ii) delivery of the product or provision of the service has occurred; (iii) the fee is fixed or determinable; and (iv) collectability of the fee is reasonably assured.

Mobile phone applications are sold using multiple platforms. Each platform handles the sale, distribution or download, as well as the collection and remittance of payment for the company. We recognize mobile application revenue net of the amounts retained by the platform companies. There is no warranty or money-back guarantee related to the sale of mobile phone applications, therefore no deferred revenue or allowance for sales returns has been recorded.

Developer tools revenue represents the Company’s revenue derived from the sale of educational videos, webinars, e-books and other materials developed by the Company and sold to customers seeking to develop and sell mobile phone applications to end users. Most of these products are sold with a 30-day money back guarantee. Therefore, we recognize revenue from the sale of developer tools ratably over the term of the contract, usually six weeks. Cash receipts in advance of revenue recognized are recorded within deferred revenue.

Business acquisitions

Business acquisitions are accounted for under the purchase method of accounting. Under that method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of the acquisition, with any excess of the cost of the acquisition over the estimated fair value of the net tangible and intangible assets acquired recorded as goodwill. We make significant judgments and assumptions in determining the fair value of acquired assets and assumed liabilities, especially with respect to acquired intangibles. Using different assumptions in determining fair value could materially impact the purchase price allocation and our financial position and results of operations. Results of operations for acquired businesses are included in the consolidated financial statements from the date of acquisition.

Goodwill

Goodwill represents the excess of the purchase price of an acquired enterprise or assets over the fair value of the identifiable net assets acquired.  We test goodwill for impairment in each quarter of the year, and whenever events or changes in circumstances arise during the year that indicate the carrying amount of goodwill may not be recoverable.  In evaluating whether an impairment of goodwill exists, we first compare the estimated fair value of a reporting unit against its carrying value. If the estimated fair value is lower than the carrying value, then a more detailed assessment is performed comparing the fair value of the reporting unit to the fair value of the assets and liabilities plus the goodwill carrying value of the reporting unit.  If the fair value of the reporting unit is less than the fair value of its assets and liabilities plus goodwill, then an impairment charge is recognized to reduce the carrying value of goodwill by the difference.  The gross amount of goodwill at June 30, 2012 was $7,106,355 (December 31, 2011 - $2,977,934) with accumulated impairment of $6,332,308 (December 31, 2011 - $2,350,800).  The net amount of goodwill at June 30, 2012 was $774,047 (December 31, 2011 - $627,134).

During the six months ended June 30, 2012, we recorded an impairment charge totaling $3,981,508 related to purchased goodwill whose carrying amount exceeded its implied fair value (December 31, 2011 - $2,350,800).
 
 
22

 

Long-Lived Assets

Long-lived assets include equipment and intangible assets other than those with indefinite lives. We assess the carrying value of our long-lived asset groups when indicators of impairment exist and recognize an impairment loss when the carrying amount of a long-lived asset is not recoverable from the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Indicators of impairment include significant underperformance relative to historical or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted cash flow analysis, and an impairment charge is recorded for the excess of carrying value over fair value.

Property and equipment are recorded at historical cost less accumulated depreciation, unless impaired. Depreciation is charged to operations over the estimated useful lives of the assets using the straight-line. Upon retirement or sale, the historical cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized. Expenditures for repairs and maintenance are charged to expense as incurred.

Income Taxes

We utilize the balance sheet method of accounting for income taxes. Accordingly, we are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the process of preparing our consolidated financial statements. This process involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. Due to the evolving nature and complexity of tax rules, it is possible that our estimates of our tax liability could change in the future, which may result in additional tax liabilities and adversely affect our results of operations, financial condition and cash flows.

Stock-based compensation

We measure and recognize stock-based compensation expense using a fair value-based method for all share-based awards made to employees and non-employee directors, including grants of stock options and other stock-based awards. The application of this standard requires significant judgment and the use of estimates, particularly with regard to Black-Scholes assumptions such as stock price volatility and expected option lives to value equity-based compensation. We recognize stock compensation expense using a straight-line method over the vesting period of the individual grants.

Recent accounting pronouncements

The Company has evaluated recent pronouncements and does not expect their adoption to have a material impact on the Company’s financial position, or statements.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
 
 
23

 
 
Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of June 30, 2012, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2012, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below with respect to our internal control over financial reporting.

Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Internal Control Over Financial Reporting

1.           We do not have written documentation of our internal control policies and procedures.  Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

2.           We do not have sufficient segregation of duties within accounting functions, which is a basic internal control.  Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.  Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

Changes in Internal Control over Financial Reporting

No change in our system of internal control over financial reporting occurred during the quarter ended June 30, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
24

 

PART II—OTHER INFORMATION
 
Item 1.  Legal Proceedings.
 
There are presently no pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of their property is subject and no such proceedings are known to the Company to be threatened or contemplated against it.

In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
 
Item 1A. Risk Factors.
 
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On April 26, 2012, the Company issued an aggregate of 1,200,000 shares of common stock and warrants to purchase 1,200,000 shares of common stock at an exercise price of $0.50 per share to two accredited investors for aggregate gross proceeds of $300,000.  The warrants are exercisable for a period of one (1) year from the date of issuance. The shares of common stock and warrants were issued in connection with the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") in that the Company did not engage in any general solicitation or advertisement in connection with the offering of the securities.

On April 26, 2012, the Company issued an aggregate of 600,000 shares of common stock and warrants to purchase 600,000 shares of common stock at an exercise price of $0.40 per share to one accredited investor for aggregate gross proceeds of $150,000.  The warrants are exercisable for a period of one (1) year from the date of issuance. The shares of common stock and warrants were issued in connection with the exemption from registration provided by Section 4(2) of the Securities Act in that the Company did not engage in any general solicitation or advertisement in connection with the offering of the securities.

On June 18, 2012 and June 22, 2012, the Company issued an aggregate of 71,685 and 100,065 shares of common stock, respectively, to Asher Enterprises, Inc. (the "Holder") in connection with the conversion of outstanding principal and interest due under the terms and conditions of a convertible promissory note issued to the Holder on December 8, 2011 (the "Note").  Using the closing market price on the issue dates, the common shares had a value of $46,522. The shares of common stock issued upon the conversion of the Note were issued in connection with the exemption from registration provided by Section 4(2) of the Securities Act in that the Company did not engage in any general solicitation or advertisement in connection with the offering of the securities.

The Company, entered into a consulting agreement, dated April 9, 2012 (the "Consulting Agreement"), with Andre Peschong (the "Consultant") pursuant to which the Consultant agreed to provide certain management and business development services (the "Services") to the Company for an initial period of 12 months, which period shall continue until terminated by either party upon thirty (30) days prior written notice to the other party, with or without cause.  As compensation for providing the services, the Company agreed to issue (1) 250,000 shares of the Company's common stock within seven (7) business days of the effective date of the Consulting Agreement; (2) 400,000 shares of common stock on July 10, 2012 and (3) agreed to pay the Consultant $16,500 per month, which is accruing as of the effective date of the Consulting Agreement and is payable at such time as the Company has raised a minimum of $500,000 in new capital from third party sources. As of the date of this filing, only 250,000 shares have been issued in connection with the terms of the Consulting Agreement. The shares of common stock issued pursuant to the terms of the Consulting Agreement were issued in connection with the exemption from registration provided by Section 4(2) of the Securities Act in that the Company did not engage in any general solicitation or advertisement in connection with the offering of the securities.
 
 
25

 

In connection with the terms and conditions of a professional services agreement, effective as of April 16, 2012 (the "Services Agreement"), by and between the Company and ChangeWave, Inc. ("ChangeWave"), pursuant to which ChangeWave agreed to provide certain equities research reports and other outreach media services (the "Research Services").  As compensation for the Research Services, the Company agreed to issue an aggregate of 1,200,000 shares of common stock as follows: (1) 200,000 shares of common stock were issued upon signing the Services Agreement and (2) 250,000 shares upon completion of each 90 day investor marketing campaign. As of the date of this filing, 200,000 shares of common stock have been issued in connection with the terms of the Services Agreement. The shares of common stock issued pursuant to the terms of the Services Agreement were issued in connection with the exemption from registration provided by Section 4(2) of the Securities Act in that the Company did not engage in any general solicitation or advertisement in connection with the offering of the securities.

On June 18, 2012, the Company issued an aggregate of 500,000 shares to our legal counsel for $150,000 as consideration for legal services rendered. The shares of common stock issued pursuant to the terms of the Consulting Agreement were issued in connection with the exemption from registration provided by Section 4(2) of the Securities Act in that the Company did not engage in any general solicitation or advertisement in connection with the offering of the securities.

On May 23, 2012, the Company and its subsidiary, Bitzio Studios, Inc. (the Subsidiary) entered into a Share Purchase Agreement (the Share Purchase Agreement) with Manny Bains, Tejinder Gill and Brendan Shaw (collectively, the Holders), the owners of all of the issued and outstanding shares of Motion Pixel Corporation Holdings, a corporation incorporated under the laws of Costa Rica (MPCH). Pursuant to the Share Purchase Agreement, the Subsidiary purchased all of the outstanding shares of MPCH from the Holders in exchange for 6,500,000 shares of the Company's common stock (the Acquisition). On May 23, 2012, the Subsidiary and MPCH entered into a one-year Consulting Agreement (the MPCH Consulting Agreement) with Latin America Futbol Corp., a corporation incorporated under the laws of Florida (LAFC). Pursuant to the MPCH Consulting Agreement, LAFC will receive (i) $100,000 over the one-year term of the Consulting Agreement, (ii) cash from revenue sharing based on revenues generated by MPCH ("Revenue Sharing") and (iii) shares of the Company's common stock for LAFC expenses that exceed cash from the Revenue Sharing. The shares of the Company's common stock shall be based on the average closing price of the Company's common stock, provided that the price shall not be less than $0.25 per share and not more than $.50 per share. LAFC may also receive up to 3,000,000 in additional shares of common stock for achieving certain milestones. The foregoing description of the Share Purchase Agreement and MPCH Consulting Agreement are qualified in their entirety by the reference to the full text of the agreements, which are attached hereto as exhibits. The securities have not been registered under the Securities Act and may not be offered or sold in the United States absent registration under the Securities Act or a valid exemption from registration.
 
On June 4, 2012, the Company entered into a Share Sale and Purchase Agreement (the "ACT Purchase Agreement") with Bermet GMBH ("Bermet") and Innoflow GMBH ("Innoflow") pursuant to which the Company acquired all of the issued and outstanding capital shares of ACT Smartware GMBH ("Act Smartware") owned by Bermet and Innoflow in exchange for an aggregate of 3,300,000 Series A Convertible Redeemable Preferred Shares of the Company. The foregoing description of the ACT Purchase Agreement is qualified in its entirety by the reference to the full text of the agreement, which is attached hereto as an exhibit. The Series A Convertible Preferred Shares have been issued in connection with the exemption from registration provided by Section 4(2) of the Securities Act in that the Company did not engage in any general solicitation or advertisement in connection with the offering of the securities not.  The preferred shares have not been registered under the Securities Act and may not be offered or sold in the United States absent registration under the Securities Act or a valid exemption from registration.

Item 3.  Defaults Upon Senior Securities.
 
None.
 
Item 4.  Mine Safety Disclosure.
 
Not applicable.

Item 5.  Other Information.
 
The information set forth above in Item 3.02 with respect to the acquisition of the Act Smartware securities pursuant to the terms of the ACT Purchase Agreement is incorporated herein by this reference.
 
 
26

 
 
Item 6.  Exhibits.
 
(a) Exhibits required by Item 601 of Regulation S-K.
 
Exhibit No.
 
 Description
     
3.1
 
Certificate of Incorporation (incorporated by reference from Exhibit 3.1 to the registrant’s Form 10-SB filed with the Securities and Exchange Commission on December 19, 2005).
3.2
 
Certificate of Amendment to Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Company's Form 8-K filed on May 23, 2012).
3.3
 
Bylaws (incorporated by reference from Exhibit 3.2 to the registrant’s Form 10-SB filed with the Securities and Exchange Commission on December 19, 2005).
10.1
 
Form of Share Purchase Agreement with Manny Bains, Tejinder Gill and Brendan Shaw (incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on May 31, 2012.)
10.2
 
Consulting Agreement with Latin American Futbol Corp., a corporation incorporated under the laws of Florida (incorporated by reference from Exhibit 10.2 to the registrant’s Form 8-K filed with the Securities and Exchange Commission on May 31, 2012).
10.3
 
Share Sale and Share Purchase Agreement, dated June 4, 2012 by and among the Company, Innoflow GMBH and Bermet GMBH.
31.1
 
Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.
31.2
 
Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.
32.1
 
Certification of the Company’s Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2   Certification of the Company’s Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101.INS **
 
XBRL Instance Document
     
101.SCH **
 
XBRL Taxonomy Extension Schema Document
     
101.CAL **
 
XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF **
 
XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB **
 
XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE **
 
XBRL Taxonomy Extension Presentation Linkbase Document
__________
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
27

 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
BITZIO, INC.
 
     
Dated: August 14, 2012
By:
/s/  William Schonbrun
 
   
William Schonbrun
 
 
Chief Executive Officer
 
       
       
 
By:
/s/  Robert W. Garnett
 
   
Robert W. Garnett
 
 
Chief Financial Officer
 
 
 
28

PINX:BTZO Bitzio Inc Quarterly Report 10-Q Filling

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PINX:BTZO Bitzio Inc Quarterly Report 10-Q Filing - 6/30/2012
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