Bitzio, Inc. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - Bitzio, Inc.	Financial_Report.xls
EX-32.1 - Bitzio, Inc.	ex32-1.htm
EX-31.1 - Bitzio, Inc.	ex31-1.htm
EX-31.2 - Bitzio, Inc.	ex31-2.htm
EX-32.2 - Bitzio, Inc.	ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2015

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from:

Commission file number: 000-51688

BITZIO, INC.

(Exact name of registrant as specified in its charter)

Nevada		16-1734022
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9625 Cozycroft Avenue, Suite A Chatsworth, CA		91311
(Address of principal executive offices)		(Zip Code)

Issuer’s telephone number (866) 824-7881

(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 [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 than the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filed,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	[ ]	Accelerated filer	[ ]

Non-accelerated filer	[ ]	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 Act). Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 20, 2015 the number of shares of the registrant’s classes of common stock outstanding was 4,142,944,587.

TABLE OF CONTENTS

		Page Numbers
Part I – Financial Information

	Proviso Regarding Forward-Looking Statements	3
Item 1.	Financial Statements (Unaudited)	F-1
	Consolidated Balance Sheets	F-1
	Consolidated Statements of Operations	F-2
	Consolidated Statements of Cash Flows	F-3
	Notes to Consolidated Financial Statements	F-4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7
Item 4.	Controls and Procedures	7

Part II – Other Information

Item 1.	Legal Proceedings	8
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8
Item 3.	Defaults Upon Senior Securities	8
Item 4.	Mine Safety Disclosures	8
Item 5.	Other Information	8
Item 6.	Exhibits	8

	Signatures	9

PART I – FINANCIAL INFORMATION

Proviso Regarding Forward-Looking 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 March 31, 2015 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 April 15, 2015.

ITEM 1. FINANCIAL STATEMENTS

BITZIO, INC

Consolidated Balance Sheets

	March 31, 2015			December 31, 2014
	(unaudited)
Assets
Current Assets
Cash and cash equivalents	$	19,272		$	3,829
Accounts receivable, net		9,714			24,538
Prepaid expenses and other current assets		456,203			560,631
Inventory		223,077			219,416
Total Current Assets		708,266			808,414

Other Assets
Intangible assets, net		744,856			589,044
Fixed assets, net		25,000			2,724
Other receivable		380			1,192
Note receivable		25,979			25,979
Total Other Assets		796,215			618,939

Total Assets	$	1,504,481		$	1,427,353

Liabilities and Stockholders’ Deficit
Current Liabilities:
Accounts payable and accrued liabilities		1,371,881			1,290,802
Related party payable		162,660			163,666
Notes payable, net of discount		313,254			327,681
Convertible notes, net of discount		1,096,734			756,982
Related party convertible notes		450,000			150,000
Contingent liabilities		101,000			101,000
Derivative liability		1,037,052			3,212,200
Total Current Liabilities		4,532,581			6,002,331

Long term notes payable		-			-
Redeemable preferred stock series C, $0.001 par value; 999 shares authorized; 999 shares issued and outstanding		-			-
Total Liabilities		4,532,581			6,002,331

Stockholders’ Deficit:
Preferred stock series A, $0.001 par value; 2,500,000 shares authorized; 2,043,120 shares issued and outstanding		2,043			2,043
Preferred stock series B, $0.001 par value; 1,000,000 shares authorized; 1,000,000 and 1,000,000 shares issued and outstanding, respectively		1,000			1,000
Preferred stock series D, $0.001 par value; 35,750 shares authorized; 15,750 and nil shares issued and outstanding, respectively		16			-
Common stock, $0.001 par value; 10,000,000,000 shares authorized; 4,142,944,587 and 2,948,694,586 shares issued and outstanding, respectively		4,142,945			2,948,696
Additional paid in capital		18,368,569			19,199,481
Stock to be issued		131,376			120,438
Stock subscriptions payable		181,074			181,074
Accumulated deficit		(25,846,254	)		(27,026,191	)
Total Bitzio, Inc. stockholders’ deficit		(3,019,231	)		(4,573,459	)
Non-controlling interest		(8,869	)		(1,519	)
Total stockholders’ deficit		(3,028,100	)		(4,574,978	)
Total Liabilities and Stockholders’ Deficit	$	1,504,481		$	1,427,353

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

F-1

BITZIO, INC

Consolidated Statements of Operations

(Unaudited)

	Three Month Ended March 31,
	2015			2014
Revenues	$	125,449		$	26,703

Cost of Good Sold		63,519			-
Gross Profit		61,930			26,703

Operating Expenses
Professional fees		60,521			161,705
General and administrative		368,732			132,698
Impairment of goodwill		-
Total operating expenses		429,253			294,403

Loss from Operations		(367,323	)		(267,700	)

Other Income (Expense)
Interest expense		(355,125	)		(257,331	)
Change in derivative liability		2,821,725			(818,778	)
Foreign currency transaction gain		19,992			43
Loss on extinguishment of debt		(946,682	)		(2,850	)
Total other income (expense)		1,539,910			(1,078,916	)

Loss Before Income Taxes		1,172,587			(1,346,702	)
Provision For Income Taxes		-			-

Net Income (Loss) before Non-controlling Interest		1,172,587			(1,346,702	)

Net Loss Attributable to Non-controlling Interest		(7,350	)		(5,194	)

Net Loss Attributable to Bitzio, Inc.	$	1,179,937		$	(1,341,508	)

Earnings (Loss) Per Share attributable to Bitzio shareholders
Basic	$	0.00		$	(0.01	)
Diluted	$	0.00		$	(0.01	)
Weighted Average Common Shares
Basic		3,718,144,025			229,180,506
Diluted		17,248,090,635			229,180,506

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

F-2

BITZIO, INC

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	2015			2014
Cash Flows from Operating Activities
Net Income (Loss)		1,179,937			(1,341,508	)
Adjustments to reconcile net income (loss) to net cash used in operating activities
Net loss attributable to non-controlling interest		(7,350	)		(5,194	)
Depreciation and amortization		107,601			15,000
Loss on extinguishment of debt		946,682			2,850
Loss (Gain) on Foreign currency transaction		(19,992	)		43
Amortization of debt discounts on convertible notes		14,530			15,504
Origination interest on convertible notes payable		311,349			215,802
Change in derivative liabilities		(2,821,725	)		818,778
Changes in operating assets and liabilities:		-			-
Accounts receivable		23,912			(18,975	)
Prepaid expenses and other current assets		114,922			6,250
Inventory		(3,661	)		-
Accounts payable and accrued expenses		85,952			168,621
Related party payables		(1,006	)		3,699
Net cash used in operating activities		(68,849	)		(119,130	)

Cash Flows from Investing Activities
Cash invested in note receivable		-			(53,079	)
Purchase of equipment		-			-
Net cash used in investing activities		-			(53,079	)

Cash Flows from Financing Activities
Repayments on notes payable		(8,737	)		(37,800	)
Proceeds from notes payable		-			70,000
Proceeds from convertible notes payable		75,000			37,500
Proceeds from sale of preferred stock		-			100,000
Net cash provided by financing activities	$	66,263		$	169,700

Net increase in cash		(2,586	)		(2,509	)
Cash acquired in acquisition		18,029			-
Cash, beginning of period		3,829			3,877

Cash and Cash Equivalents, end of period	$	19,272		$	1,368

Cash Paid For:
Interest	$	-		$	-
Income taxes	$	-		$	-

Non-cash Financing and Investing Activities
Debt discounts on convertible notes payable	$	150,000		$	37,500
Common stock issued for debt	$	1,351,749		$	137,069
Common stock issued for prepaid services	$	-		$	50,000
Common stock issued for debt issuance costs	$	-		$	2,500
Common stock converted to preferred stock	$	157,500		$	-
Prepaid expense acquired in acquisition	$	10,494		$	-
PPE acquired in acquisition	$	25,000		$	-
Other receivable acquired in acquisition	$	8,276		$	-
Account payable and accrued liabilities acquired in acquisition	$	(8,185	)	$	-
Note payable acquired in acquisition	$	(14,302	)	$	-
Intangibles acquired in acquisition	$	260,689		$	-
Note Payable issued for acquisition	$	(300,000	)	$	-

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

F-3

BITZIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015

(Unaudited)

NOTE 1 – ORGANIZATION

Bitzio, Inc. (“the Company”, “we”, “Bitzio”) was originally formed as Rocky Mountain Fudge Company, Inc. 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.

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. The Company discontinued the business operations of Bitzio LLC at the end of 2013.

On February 11 2014 the Company entered into a Memorandum of Understanding with Angie Daza d/b/a Cleo VII (the “MOU”). The MOU provides that

	●	The Company will organize a subsidiary, which has subsequently been organized in Nevada as Cleo VII, Inc., and which is owned 51% by the Company and 49% by Angie Daza. Angie Daza has contributed the product designs owned by Cleo VII to the subsidiary and agreed to provide production financing for orders up to 2,500 units per month. The Company has committed to deposit $12,000 into the bank account of Cleo VII, Inc. to be used for production and to share equally with Angie Daza the obligation to provide production financing for orders in excess of 2,500 units per month.

	●	Angie Daza will serve as President of Cleo VII, Inc., and will provide warehousing and fulfillment services at a location in Miami, Florida. The Company will develop marketing campaigns for the Cleo brand and provide administrative services.

	●	The Company immediately issued to Angie Daza 50,000,000 shares of its common stock, which shall vest quarterly over a two-year period. If Cleo-branded products achieve $1 million in annual gross revenue, the Company will issue to Angie Daza common shares with a market value of $100,000. If Cleo-branded products achieve $2 million in annual gross revenue, the Company will issue to Angie Daza additional common shares with a market value of $100,000.

On February 18, 2014 the Company executed a non-binding letter of intent to acquire ownership of Sahaja, LLC. Sahaja is currently engaged in the design, production and sale of apparel. The Company also agreed to provide loans to Sahaja, LLC totaling up to $100,000 as mutually agreed. As of March 31, 2015, $22,979 has been loaned to Sahaja but the acquisition had not yet been completed.

On March 24, 2014 the Company executed a non-binding letter of intent to acquire ownership of ZMJ Denim, Inc. ZMJ Denim, Inc is currently engaged in the design, production and sale of apparel. The Company also agreed to provide loans to ZMJ Denim, Inc. totaling up to $100,000 as mutually agreed. As of March 31, 2015, the acquisition had not yet been completed. As of March 31, 2015, $3,000 has been loaned to ZMJ Denim Inc., but the acquisition had not yet been completed.

On July 16, 2014 the Registrant entered into a Share Exchange Agreement with Hubert Blanchette, Paul Koros, Stella Koros, Michael John Koros, Gordon McDougall and Laura Fewrtell. Hubert Blanchette was, on that date, a member of the Registrant’s board of directors. Gordon McDougall was, on that date, a member of the Registrant’s board of directors and the Registrant’s Chief Executive Officer. Laura Fewtrell is Mr. McDougall’s spouse.

The transactions contemplated by the Share Exchange Agreement were completed on July 17, 2014. On that date, Mr. Blanchette and the Koros’s transferred to the Registrant all of the capital stock of Lexi Luu Design, Inc. and released Lexi Luu Design, Inc. from all accrued liabilities owed to them- See Note 6. In exchange, the Registrant issued to them a total of 300,000,000 shares of its common stock. At the same time, Ms. Fewtrell and entities affiliated with Ms. Fewtrell and Mr. McDougall released Lexi Luu Design, Inc. from all liabilities owed to them, including liabilities for money loaned, and the Registrant issued to Ms. Fewtrell and to an affiliate of Mr. McDougall a total of 200,000,000 shares of its common stock. The Share Exchange Agreement provides that additional shares of common stock will be issued to all parties if the annual revenue for any of the current or next two years exceeds the following threshholds: 2014 - $420,000; 2015 - $660,000; 2016 - $780,000. The Share Exchange Agreement also provides that additional shares will be issued to all parties if, during the 24 months following the acquisition, the Registrant completes a sale of equity securities at a per share price of less than $.0014 for aggregate gross proceeds of $420,000 or more.

On July 17, 2014, pursuant to the Share Exchange Agreement, the Company entered into an Employment Agreement with Hubert Blanchette. The agreement provides that Mr. Blanchette will serve as Chief Executive Officer of Lexi Luu Design, Inc. for a term of five years. As compensation for these services, the Company agreed to pay Mr. Blanchette a salary of $150,000 per year, except that for the period through May 31, 2015 sixty percent of the salary will be satisfied by issuance of common stock at a per share value of $.0015. The Registrant agreed to issue 50,000,000 common shares to Mr. Blanchette upon his execution of the agreement, which will vest quarterly over two years. The agreement also provides that Lexi Luu Design, Inc. will pay Mr. Blanchette 5% of the contribution margin realized during the half year preceding the acquisition. Lexi Luu is one the leading kids dance and gymnastic wear companies in the United States. Lexi Luu Specializes in unique, custom kids dance and gymnastic wear in playfun patterns, fun colors that can go from dancing to dining out. Their product line includes yoga pants, shorts, tops, sets, ruffle buttoms, tutus amongst its major sellers. Lexi Luu manufactures its products in house at their facility in Arizona and has national and international distribution.

F-4

On July 18, 2014 the Registrant entered into a Share Exchange Agreement with Marilu Brassington, Elaine Cunningham and Leticia Brito. Ms. Brassington is the Registrant’s Chief Financial Officer and a member of the Registrant’s board of directors.

The transactions contemplated by the Share Exchange Agreement were completed on July 18, 2014. On that date, the three counterparties transferred to the Registrant all of the capital stock of E-motion Apparel, Inc. In exchange, the Company issued to them a total of 350,000,000 shares of its common stock- See Note 6. The Share Exchange Agreement provides that additional shares of common stock will be issued to all parties if the annual revenue of E-Motion Apparel for any of the current or next two years exceeds the following threshholds: 2014 - $270,000; 2015 - $390,000; 2016 - $540,000. The Share Exchange Agreement also provides that additional shares will be issued to all parties if, during the 24 months following the acquisition, the Registrant completes a sale of equity securities at a per share price of less than $.0013 for aggregate gross proceeds of $455,000 or more.

On July 18, 2014, pursuant to the Share Exchange Agreement, the Registrant entered into an Employment Agreement with Marilu Brassington. The agreement provides that Ms. Brassington will serve as the Registrant’s Chief Financial Officer and as Chief Executive Officer of E-motion Apparel, Inc. for a term of five years. As compensation for these services, the Registrant agreed to pay Ms. Brassington a salary of $150,000 per year, except that for the period through May 31, 2015 68% of the salary will be satisfied by issuance of common stock at a per share value of $.0015. The Registrant agreed to issue 50,000,000 common shares to Ms. Brassington upon her execution of the agreement, which will vest quarterly over two years. The agreement also provides that the Registrant will pay Ms. Brassington 5% of the contribution margin realized on sales to current customers of E-motion Apparel.

E-motion Apparel, Inc. E-motion Apparel is a women’s contemporary brand specializing in the resort-wear market. E-motion represents equal parts fashion, function and wearable art. E-motion apparel is every daywear for every woman. E-motion is a modern take on tie-dye to create comfortable, dynamic casual wear for today’s active lifestyle. The brand’s product line incudes maxi dresses, mini dresses, skirts, tops and pants in both hand tie-dye patterns and solid colors. The brand currently uses mainly one fabric manufactured both domestically and overseas. The styles are made with the intention to appeal to most demographics from women in their 20s to women into 60s. The fabric, styles and hand tie-dyed methods are what differentiate this brand from other similar brands in the market. The brand will market its production through traditional channels such as trade shows, sales representatives, online marketing and social media. The product is manufactured primarily locally and shipped from our local facilities. E-motion Apparel is currently in high-end boutiques and resorts across the country and expanding both domestically and internationally.

On February 26, 2015, the Company entered into and closed under a securities purchase agreement to acquire 100% of the outstanding shares of Skipjack Dive and Dancewear, Inc., in exchange for a 2% subordinate secured term note in the aggregate principal amount of $100,000. The note has a maturity date of September 30, 2015, and is convertible at the rate of $0.10 per share into 1,000,000 shares of common stock of the Company.

On March 3, 2015, the Company entered into and closed under a securities purchase agreement to acquire 100% of the outstanding shares of Punkz Gear, Inc., in exchange for a 2% subordinate secured term note in the aggregate principal amount of $200,000. The note has a maturity date of September 30, 2015, and is convertible at the rate of $0.10 per share into 2,000,000 shares of common stock of the Company.

On March 5, 2015, the Company entered into a securities purchase agreement to acquire 100% of all outstanding shares of Koka Creative Corporation, conditional on completion of a $3,000,000 financing. The Company agreed to pay 800,000 shares of Series F preferred stock for this acquisition. The terms of the agreement with Koka provide for (a) the completion of two equity financings by the Company, an initial $3,000,000 financing and a subsequent $6,000,000 financing; (b) the spin-out of the Company’s existing operations to the Company’s shareholders; (c) the restructuring of the Company’s outstanding debt and equity to eliminate the substantial majority of the Company’s debt and to prepare the Company to petition for up-listing; and (d) the appointment of Koka’s designees to the Company’s management and board of directors. The agreement provides for the closing of the Koka acquisition simultaneously with the completion of the first financing. The Company does not yet have a commitment for the first financing.

NOTE 2 – GOING CONCERN

The Company’s financial statements are prepared using accounting principles generally accepted 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, has recurring net loss, an accumulated deficit of $25,846,254 and a net working capital deficit of $3,824,315. 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.

F-5

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 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

Principles of Consolidation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the Company’s wholly owned subsidiaries Lexi Luu, E-motion, Skipjack, and Punkz Gear and its 51% owned subsidiary Cleo. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates include, but are not limited to, 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 products. We recognize revenue when the following conditions are satisfied: (i) delivery of the product has occurred and (ii) collection is reasonably assured.

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 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 that incorporate historical write-offs and current economic conditions. As of March 31, 2015 and December 31, 2014, the outstanding balance allowance for doubtful accounts is zero, respectively.

The policy for determining past due status is based on the contractual payment terms of each customer, which are generally net 30 or net 60 days. Once collection efforts by the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made.

Inventory

The Company’s inventory is stated at the lower of cost or estimated realizable value, with cost primarily determined on a weighted-average cost basis on the first-in, first-out (“FIFO”) method. The Company continuously evaluates the composition of its inventory, assessing slow-turning product. Estimated realizable value of inventory is determined based on an analysis of historical sales trends of our individual products and a forecast of future demand, giving consideration to the value of current orders in-house relating to the future sales of inventory. Estimates may differ from actual results due to quantity, quality, and mix of products in inventory, customer demand, and market conditions. The Company’s historical estimates of these costs and any provisions have not differed materially from actual results. As of March 31, 2015, an inventory reserve had not been deemed necessary, and therefore, not recorded. As of March 31, 2015 inventory consisted of $54,965 in finished goods and $168,112 in raw materials.

F-6

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 when compared to 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

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 method.

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.

Intangible assets

We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. Intangible assets are amortized on a straight-line basis over their useful lives.

Shipping and Handling Costs

For product sales, shipping and handling costs are included as a component of general and administrative expenses. For the three months ended March 31, 2015 and 2014, such expenses totaled $5,186 and $0, respectively.

Advertising Expense

The Company expenses marketing, promotions and advertising costs as incurred. For the three months ended March 31, 2015 and 2014, such costs totaled $16,482 and $99,644, respectively. Such costs are included in general and administrative expense in the accompanying consolidated statements of operations.

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 financial statements from the date of acquisition.

Accumulated Other Comprehensive Income

Comprehensive loss includes net loss as currently reported under U.S. GAAP and other comprehensive loss. Other comprehensive loss considers the effects of additional economic events, such as foreign currency translation adjustments, that are not required to be recorded in determining net loss, but rather are reported as a separate component of stockholders’ equity (deficit). Currently the Company has no other comprehensive income.

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 nonemployee 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.

F-7

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 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.

Basic and Diluted Net Loss per Common Share

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, convertible preferred stock 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 antidilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. There were 17,248,090,635 such potentially dilutive shares excluded for the three months ended March 31, 2015.

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.

Derivative Liabilities

In connection with the Company’s Convertible Notes beginning in November 2013, the Company became contingently obligated to issue shares in excess of the 4.2 billion authorized by shareholders. Consequently, the ability to settle these obligations with shares would be unavailable causing these obligations to potentially be settled in cash. This condition creates a derivative liability.

The Company has a sequencing policy regarding share settlement wherein instruments with the earliest issuance date would be settled first. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares.

Using this sequencing policy, all instruments convertible into common stock, including warrants and the conversion feature of notes payable, issued subsequent to November 18, 2013 are derivative liabilities.

The Company also has certain notes payable with elements that qualify as derivatives. The warrants have anti-dilution clauses that prevent calculation of the ultimate number of shares that may be issued upon exercise, and two of the notes payable had a variable conversion feature that similarly prevented the calculation of the number of shares into which they were convertible.

The Company values these warrants and notes payable using the binomial lattice method. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the statement of operations.

Fair Value Measurements

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:

	Level 1:	Quoted market prices in active markets for identical assets or liabilities.

	Level 2:	Observable market-based inputs or inputs that are corroborated by market data.

	Level 3:	Unobservable inputs that are not corroborated by market data.

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.

F-8

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of March 31, 2015 and December 31, 2014:

	March 31, 2015			December 31, 2014
Machinery and equipment	$	29,471		$	4,470
Computer and Furniture		1,404			1,404
Less: accumulated depreciation	$	(5,875	)		(3,150	)
Total	$	25,000		$	2,724

NOTE 5 – ACQUISITIONS

For Skipjack Dive and Dancewear, Inc. and Punkz Gear, Inc. acquisitions the accounting for the business combination is based on provisional amounts and the allocation of the excess purchase price is not final, the amounts allocated to intangibles, are subject to change pending the completion of final valuations of certain assets and liabilities. The statements of operations reflect the results of Skipjack Dive and Dancewear, Inc. and Punkz Gear, Inc., since the date of acquisition.

The total purchase price for the Skipjack acquisition was allocated as follows:

Assets
Cash		1,502
Other assets		10,494
Intangible assets-Customer relationships		84,751
Property and equipment		25,000
Liabilities
Accounts payable and accrued liabilities		(7,445	)
Due to shareholder		(14,302	)
Net assets acquired	$	100,000

F-9

The total purchase price for the Punkz Gear acquisition was allocated as follows:

Assets
Cash		16,526
Other assets		8,276
Intangible assets-Customer relationships		175,938
Liabilities
Accounts payable and accrued liabilities		(740	)
Net assets acquired	$	200,000

The customer relationships will be amortized over their estimated useful lives of 2 years.

NOTE 6 – INTANGIBLE ASSETS

Intangible Assets

On July 16, 2014, we entered into a sales purchase agreement in 100% acquisition of all outstanding shares of Lexi Luu. Designs. Bitzio paid 500,000,000 restricted commons shares for this acquisition. Lexi Luu shareholders are able to earn an additional $300,000 in restricted common shares over the course of years in an earn out upon hitting certain revenue benchmarks. We accounted for the transaction as an equity purchase. Of the purchase price paid as of July 16, 2014 ($183,629) was allocated among the assets and liabilities and difference was taken to intangible assets in amount of $690,629. As of March 31, 2015, the net carrying amount is $446,544. This intangible assets will be amortized over life of 2 years, estimated amortization expense for 2015 and 2016 are $260,168 and $186,376 respectively.

On July 18, 2014, we entered into a sales purchase agreement in 100% acquisition of all outstanding shares of E-motion Apparel. Designs. Bitzio paid 350,000,000 restricted commons shares for this acquisition. E-motion Apparel shareholders are able to earn an additional $300,000 in restricted common shares over the course of years in an earn out upon hitting certain revenue benchmarks. We accounted for the transaction as an equity purchase. Of the purchase price paid as of July 18, 2014 ($26,235) was allocated among the assets and liabilities and difference was taken to intangible assets in amount of $74,235. As of March 31, 2015, the net carrying amount is $48,202. This intangible assets will be amortized over life of 2 years, estimated amortization expense for 2015 and 2016 are $27,966 and $20,236 respectively.

On February 26, 2015, Lexi Luu entered into and closed under a securities purchase agreement to acquire 100% of all outstanding shares of Skipjack Dive and Dancewear, Inc., in exchange for a 2% subordinate secured term note in the aggregate principal amount of $100,000. The note has a maturity date of September 30, 2015, and is convertible at the rate of $0.10 per share into 1,000,000 shares of common stock of the Company. Of the purchase price paid as of February 26, 2015 ($15,249) was allocated among the assets and liabilities and difference was taken to intangible assets in amount of $84,751. As of March 31, 2015, the net carrying amount is $80,920. This intangible assets will be amortized over life of 2 years, estimated amortization expense for 2015, 2016, and 2017 are $31,927 and $42,492, and 6,501 respectively.

On March 3, 2015, Lexi Luu entered into and closed under a securities purchase agreement to acquire 100% of all outstanding shares of Punkz Gear, Inc., in exchange for a 2% subordinate secured term note in the aggregate principal amount of $200,000. The note has a maturity date of September 30, 2015, and is convertible at the rate of $0.10 per share into 2,000,000 shares of common stock of the Company. Of the purchase price paid as of March 3, 2015 ($24,062) was allocated among the assets and liabilities and difference was taken to intangible assets in amount of $175,938. As of March 31, 2015, the net carrying amount is $169,190. This intangible assets will be amortized over life of 2 years, estimated amortization expense for 2015, 2016, and 2017 are $66,278, and $88,210, and 14,702 respectively.

Amortization of intangible assets is computed using the straight-line method and is recognized over the estimated useful lives of the intangible assets. Amortization expense was $104,877 and $0 for the three months ended March 31, 2015 and 2014, respectively.

F-10

Estimated amortization expense for the intangible assets for the next five years consists of the following:

Year ending December 31
2015	$	386,339
2016		337,314
2017		21,203

NOTE 7 – RELATED PARTY TRANSACTIONS

Related party payables

At March 31, 2015, $5,960 was due to chief financial officer for an advance loan.

At March 31, 2015, $123,000 was due for services rendered by a company owned by Bitzio’s former chief executive officer. During 2013, the Company borrowed $150,000 from related party through a convertible promissory note bearing interest at 10% with a maturity date of January 1, 2014. The note contains a conversion feature wherein the note may be converted to shares of the Company’s common stock at the lower of $0.05 per common share or 20% discount to market for last 30 trading days prior to the conversion. As of March 31, 2015, the Company had principal outstanding in the note of $150,000, and accrued interest of $33,700.

NOTE 8 – CONVERTIBLE NOTES PAYABLE

Exchange of Convertible Debentures

Immediately subsequent to its purchase of 500,000 shares of Series B Preferred Stock on November 18, 2013, 112359 Factor Fund, LLC (“Factor Fund”) entered into assignment agreements with seven holders of eight convertible promissory notes issued by the Registrant in 2012 and 2013. The aggregate of the principal balance and accrued interest on the notes was $779,591, and all of the notes were past due and otherwise in default. The assignment agreements provided that Factor Fund transferred the 500,000 shares of Series B Preferred Stock to the note holders, and the note holders assigned the eight notes to Factor Fund.

Immediately thereafter, Factor Fund entered into eight Exchange Agreements with the Registrant. The Exchange Agreements provided that Factor Fund would surrender the eight convertible promissory notes and receive in exchange eight Amended and Restated Convertible Debentures (“A&R Debentures”). The principal amount of each A&R Debenture equaled approximately 128.3% of aggregate principal and accrued interest surrendered in exchange for the A&R Debenture. The primary terms of the A&R Debentures are:

	●	Interest will accrue on the principal balance at the lesser of 8% per annum or the applicable federal rate.

	●	Principal and interest are due on December 31, 2015.

	●	The Company may prepay the A&R Debentures at any time, but must issue, as a prepayment penalty, common stock with a market value equal to 5% of the principal amount prepaid.

	●	The holder may convert the principal and interest accrued on the A&R Debentures into common stock at a conversion price equal to 100% of the average of the five (5) lowest closing market prices for the common stock for the thirty trading days preceding conversion, but may not convert into a number of shares that would result in the holder owning beneficially more than 4.99% of the Registrant’s outstanding shares.

	●	The holder may not sell the shares issued on conversion at a rate that exceeds 20% of the average monthly trading volume for the Company’s Common Stock.

The Company determined per ASC 470-50-40-10a, that the fair value of the embedded conversion option in the reissued convertible notes as a result of the change in conversion price and term, increased by more than 10% from the original notes. Therefore, debt extinguishment accounting rules apply. Accordingly, the reissued convertible notes payable were initially recorded at fair value, with a loss on extinguishment of debt of $220,408 for the difference in the fair value of the new notes compared to the carrying value of the old notes.

F-11

During the three months ended March 31, 2015 $82,500 of principal was converted into 825,000,000 shares of the Company’s common stock. On February 26, 2015, the balance of the note of $534,888 was transferred to Five Nine Group LLC and Flux Carbon Starter Fund LLC. All primary terms of the A&R Debentures stayed unchanged except the following:

●

The holder may convert the principal and interest accrued on the A&R Debentures into common stock at a conversion price equal to 100% of the average of the five (5) lowest closing market prices for the common stock for the sixty trading days preceding conversion, but may not convert into a number of shares that would result in the holder owning beneficially more than 4.99% of the Registrant’s outstanding shares.

The Company accounted for the transfer as an extinguishment of debt and recorded a loss on extinguishment of $509,476.

On May 5, 2014, the Company issued an 8% convertible promissory note in the aggregate principal amount of $32,500 to an accredited investor. The note has a maturity date of February 9, 2015. The note is convertible into shares of our common stock at a conversion price of 59% of the average of the three (3) lowest per share market values during the ten (10) trading days immediately preceding a conversion date. During the three months ended March 31, 2015, the Company recorded an interest expense of $1,635. The Company accounted for the conversion feature as a derivative valued at $36,411, of which $32,500 was recorded as a debt discount to be amortized over the life of the note. The remaining $3,911 was expensed immediately to interest expense. As of March 31, 2015, the note and accrued interest was fully repaid.

On August 5, 2014 the Registrant entered into a Securities Purchase Agreement with 112359 Factor Fund, LLC (“Factor Fund”), pursuant to which the Registrant sold to Factor Fund a Secured Convertible Debenture. The Securities Purchase Agreement provides that Factor Fund will make ten payments, commencing with a payment of $80,000 on August 5, 2014, followed monthly by eight payments of $25,000 each and one $20,000 payment (i.e. total payments of $300,000). In exchange for each payment, an obligation in the principal amount equal to twice the payment will accrue and be represented by the Debenture. In addition, a premium of $50,000 will be added to the initial obligation, resulting in a total principal obligation accruing over the next year of $650,000. The primary terms of the Debentures are:

	●	Interest will accrue on the principal balance at the lesser of 8% per annum or the applicable federal rate.

	●	Principal and interest on each tranche will be due on the second anniversary of the payment date for that tranche.

	●	The Registrant may prepay the principal amount of the Debenture, in whole or in part, at any time without penalty, and interest that has accrued on the prepaid amount will be waived.

	●	The holder may convert the principal and interest accrued on the Debenture into common stock at a conversion price equal to 100% of the average of the five (5) lowest closing market prices for the common stock for the sixty trading days preceding conversion, but may not convert into a number of shares that would result in the holder owning beneficially more than 9.99% of the Registrant’s outstanding shares.

The Registrant’s obligations under the Debenture are secured by a pledge of all of the Registrant’s assets. In addition, Hubert Blanchette and Marilu Brassington, who are officers and directors of the Registrant, have pledged a total of 666 shares of Series C Preferred Stock and 362,500,000 shares of common stock to secure the Registrant’s obligations under the Debenture. The Company accounted for the conversion features as a derivative valued at $407,504, of which $396,370 was recorded as a debt discount to be amortized over the life of the note, the remaining $11,134 was expensed immediately to interest expense.

On August 5, 2014 the Registrant entered into a letter agreement with Factor Fund that modified the terms of the Secured Amended & Restated Convertible Debentures issued by the Registrant to Factor Fund on November 18, 2013 (the “A&R Debentures”). The modifications:

	●	increased the maximum number of shares that Factor Fund can hold upon conversion of the A&R Debentures from 4.99% of the outstanding to 9.99%.

	●	changed the period over which the conversion price will be measured from the 30 trading days preceding conversion to the 60 trading days preceding conversion.

	●	eliminated the restriction on the number of shares of common stock that Factor Fund can sell in a month.

On February 26, 2015, the balance of the note of $650,000 was transferred to Five Nine Group LLC and Flux Carbon Starter Fund LLC. All primary terms of the A&R Debentures stayed unchanged except the following:

●

The Company accounted for the transfer as an extinguishment of debt and recorded a loss on extinguishment of $437,206.

On August 20, 2014, the Company issued an 8% convertible promissory note in the aggregate principal amount of $20,500 to an accredited investor. The note has a maturity date of May 15, 2015. The note is convertible into shares of our common stock at a conversion price of 59% of the average of the three (3) lowest per share market values during the ten (10) trading days immediately preceding a conversion date. During the three months ended March 31, 2015, the Company recorded an interest expense of $606. The Company accounted for the conversion feature as a derivative valued at $31,689, of which $20,500 was recorded as a debt discount to be amortized over the life of the note. The remaining $11,189 was expensed immediately to interest expense. As of March 31, 2015, the note and accrued interest was fully repaid.

F-12

NOTE 9 – DERIVATIVE LIABILITY

Effective July 31, 2009, the Company adopted ASC 815 which defines determining whether an instrument (or embedded feature) is solely indexed to an entity’s own stock. The conversion price of our outstanding convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. As a result, the Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

ASC 815 requires Company management to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as another income or expense item. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with convertible notes payable.

At origination, the Company valued the conversion features using the following assumptions: dividend yield of zero, years to maturity of between 1.00 and 2.02 years, risk free rates of between 0.18 and 0.27 percent, and annualized volatility of between 149% and 172%. At March 31, 2015, the Company revalued the conversion features using the following assumptions: dividend yield of zero, years to maturity of between 0.75 and 1.93 years, risk free rates of 0.26 to 0.56 percent, and annualized volatility of between 303 and 396 percent and determined that, during the three months ended March 31, 2015, the Company’s derivative liability increased by $2,821,725 to $1,037,052. The Company recognized a corresponding gain on derivative liability in conjunction with this revaluation.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Since May 15, 2014, E-motion leases its office space on a month-to-month basis at a fixed rate of $1,750 per month. Lexi Luu leases its office space since June 15, 2014, at a rate of $2,099 per month, with an increase to $2,162 per month starting September 1, 2015, and to $2,227 starting September 1, 2016. The agreement provides for $0 rent payment for the months of June 2014, and July and August 2015. Expiration date of the lease agreement is September 14, 2017.

NOTE 11 – NOTES PAYABLE

From February to April 2014, the Company entered into a marketing agreement with Echo Factory, Inc. The agreement provides that the Company will issue three promissory notes to Echo Factory in an amount equal to $7,500 for service provided on February 14, March 14 and April 14, 2014. The Promissory Note shall have 12 month term and bear 8% interest and be unsecured. As of March 31, 2015, the Company had principal outstanding in the promissory note of $22,500, and accrued interest of $1,849.

During 2012, the Company borrowed $55,000 through an unsecured promissory note bearing interest at 10% with a maturity date of March 10, 2014. During 2013, the Company borrowed additional $43,214, and converted $8,062 into 8,062,000 shares of common stock. As of March 31, 2015, the Company had principal outstanding in the promissory note of $90,152, and accrued interest of $23,025.

On June 4, 2012, Bitzio, Inc. and ACT entered into a share purchase agreement wherein Bitzio 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. On February 22, 2013, the two parties agreed to unwind the transaction by Bitzio returning the ACT shares acquired and ACT returning the Bitzio preferred share consideration for cancellation. In addition, Bitzio agreed to pay an aggregate of 147,000 Euros ($194,447 USD) to ACT. The Company re-measured the amount due in U.S. dollars as of March 31, 2015 and recorded a gain on foreign currency transaction of $19,922. The amount due as of March 31, 2015 is $157,893.

On July 1, 2013, Lexi-Luu borrowed $10,000 through an unsecured promissory note bearing interest $1,076 maturity date of January 1, 2014. This note is currently at default, and bearing 45% interest. As of March 31, 2015, the Company had principal outstanding in the promissory note of $ 5,222 and accrued interest of $2,273.

NOTE 12 – 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, 1,000,000 shares are designated as Series B Convertible Preferred Stock, 999 shares are designated as Series C Preferred Stock, par value of $0.001, and 35,750 shares are designated as Series D Preferred Stock.

F-13

Series A Preferred Stock

As of March 31, 2015 and December 31, 2014, there were 2,043,120 shares of Series A Convertible Redeemable Preferred Stock issued and outstanding. The shares have the following provisions:

	●	Series A Convertible Redeemable Shares have no dividend rights.

	●	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).

	●	Series A Convertible Redeemable shares have no voting rights.

	●	Each share of Series A Convertible Redeemable Preferred Stock is convertible, at the option of the holder, at any time prior to January 2, 2017, and upon payment of $0.40 per share, into two fully paid and non-assessable shares of the Company’s common.

	●	At any time after January 2, 2017, 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).

Designation and Sale of Series B Preferred Stock

On November 18, 2013 the Company filed with the Nevada Secretary of State a Certificate of Designation of 1,000,000 shares of Series B Convertible Preferred Stock, which had been designated by the Company’s Board of Directors as authorized by the Registrant’s Articles of Incorporation. The holders of shares of Series B Preferred Stock will have the following rights:

	●	The holder may convert the Series B Preferred Stock into common stock. All 1,000,000 shares of Series B Preferred Stock are convertible into 19.8% of the common stock outstanding after the conversion, measured on the date of each conversion.

	●	The holder will have voting rights equivalent to the number of shares of common stock into which the holders Series B Preferred Stock is convertible.

	●	In the event of a liquidation of the Registrant, the holder of each share of Series B Preferred Stock will be entitled to a liquidation preference of $1.50.

	●	The holder will participate in any dividend payable to the holders of the common stock on an as-converted basis.

The Company will have the right to redeem the Series B Preferred Stock for a payment of $1.50 per share

On November 18, 2013 the Company sold 500,000 shares of Series B Preferred Stock to 112359 Factor Fund, LLC (“Factor Fund”) for a total of $250,000. The Company and Factor Fund also agreed that in each of the five months commencing February 2014 Factor Fund will purchase an additional 100,000 shares of Series B Preferred Stock for $50,000 - i.e. a total of 500,000 shares sold during those five months for a total of $250,000. During the year ended December 31, 2014, Factor Fund purchased 500,000 additional shares of Series B Preferred Stock for $250,000.

Designation and Sale of Series C Preferred Stock

On December 3, 2013 the Company filed with the Nevada Secretary of State a Certificate of Designation of 999 shares of Series C Preferred Stock, which had been designated by the Company’s Board of Directors as authorized by the Registrant’s Articles of Incorporation. The holders of shares of Series C Preferred Stock will have the following rights:

	●	The holder of each share will have the right to cast the number of votes that equals the product obtained by dividing (a) the number of votes that the holders of all voting securities other than Series C Preferred Stock outstanding on the record date for the stockholder action are entitled to cast by (b) nine hundred ninety-eight (998), with the result that all 999 shares of Series C Preferred Stock together will have 50.1% of the voting power of the Registrant.

	●	In the event of a liquidation of the Registrant, the holder of each share of Series B Preferred Stock will be entitled to a liquidation preference of $.01.

	●	The holder will not participate in any dividend payable to the holders of the common stock on an as-converted basis.

	●	On November 29, 2015, each outstanding share of Series C Preferred Stock shall be deemed to have been automatically redeemed by the Corporation. No redemption price shall be payable.

On December 3, 2013 the Board of Directors sold 333 shares of Series C Preferred Stock to each of Gordon McDougall, Marilu Brassington and Hubert Blanchette for a price of $.01 per share. The three shareholders were the members of the Registrant’s Board of Directors at that time. The Company valued the shares at $99, but immediately revalued the shares to the amount to be paid at settlement or $0.

F-14

Designation and Sale of Series D Preferred Stock

On August 5, 2014 the Registrant filed with the Nevada Secretary of State a Certificate of Designation of 35,750 shares of Series D Preferred Stock, which had been designated by the Registrant’s Board of Directors as authorized by the Registrant’s Articles of Incorporation. The holders of shares of Series D Preferred Stock will have the following rights:

	●	The holder of each share will have the right to cast the number of votes that equals the votes that could be cast by the holder of 10,000 shares of common stock.

	●	In the event of a liquidation of the Registrant, the holder of each share of Series D Preferred Stock will be entitled to a liquidation preference of $.01.

	●	The holder will not participate in any dividend payable to the holders of the common stock

During the three months ended March 31, 2015 the Company issued 15,750 shares of Series D preferred shares in exchange for the return of 157,500,000 shares of its common stock. As of March 31, 2015 15,750 shares of Series D preferred stock have been issued.

NOTE 13 – COMMON STOCK

On January 13, 2014 the Company filed with the Nevada Secretary of State a Certificate of Amendment to Articles of Incorporation. The Certificate of Amendment increased the number of authorized shares of common stock from 250 million to 2 billion. On September 12, 2014 the Company filed with the Nevada Secretary of State a Certificate of Amendment to Articles of Incorporation. The Certificate of Amendment increased the number of authorized shares of common stock from 2 billion to 4.2 billion. On April 9, 2015 the Company filed with the Nevada Secretary of State a Certificate of Amendment to Articles of Incorporation. The Certificate of Amendment increased the number of authorized shares of common stock from 4.2 billion to 10 billion. There were 4,142,944,587 shares issued and outstanding as of March 31, 2015. The activity surrounding the issuances of the Common Stock is as follows:

During the three months ended March 31, 2015 the Company issued 1,351,750,001 shares in conversion of notes payable of $1,351,749, and converted 157,500,000 shares of its common stock into 15,750 shares of Series D preferred stock.

F-15

NOTE 14 – STOCK OPTIONS AND WARRANTS

The following table summarizes all stock option and warrant activity for the three months ended March 31, 2015:

	Number of Warrants			Weighted Average Exercise Price
Balance outstanding, December 31, 2014	14,588,616		$	0.35
Granted	-			-
Exercised	-			-
Forfeited	-			-
Expired	(744,000	)	$	0.40
Balance outstanding, March 31, 2015	13,844,616		$	0.35
Exercisable, March 31, 2015	13,844,616		$	0.35

The following table discloses information regarding outstanding and exercisable options and warrants at March 31, 2015:

		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 - $0.29		2,000,000		0.20		1.67		2,000,000		0.20
$	0.30 - $0.39		11,774,616		0.37		1.47		11,774,616		0.37
$	0.40 - $0.50		70,000		0.40		1.75		814,000		0.40
			13,844,616		0.54		1.50		13,844,616		0.33

NOTE 15 – FAIR VALUE MEASUREMENTS

Our financial assets and (liabilities) carried at fair value measured on a recurring basis as of March 31, 2015 and December 31, 2014 consisted of the following:

				Fair Value Measurements Using
	Total Fair			Quoted prices in		Significant other			Significant
	Value at			active markets		observable inputs			Unobservable inputs
Description	March 31, 2015			(Level 1)		(Level 2)			(Level 3)

Derivative liability (1)	$	(1,037,052	)	$	—	$	(1,037,052	)	$	—

F-16

				Fair Value Measurements Using
	Total Fair			Quoted prices in		Significant other			Significant
	Value at			active markets		observable inputs			Unobservable inputs
Description	December 31, 2014			(Level 1)		(Level 2)			(Level 3)

Derivative liability (1)	$	(3,212,200	)	$	—	$	(3,212,200	)	$	—

(1) The derivative is calculated using the Black Scholes Pricing Model

NOTE 16 – CONCENTRATION OF RISK

For the three months ended March 31, 2015, we derived approximately 30% of our sales from contracts with two customers. Our standard contract with customers is for an initial one year term, and renews automatically for successive one-month terms, unless either party terminates upon 30 days’ written notice to the other party.

NOTE 17 – SUBSEQUENT EVENTS

On April 9, 2015 the Registrant filed with the Nevada Secretary of State a Certificate of Amendment to Articles of Incorporation. The Certificate of Amendment increased the number of authorized shares of common stock from 4.2 billion to 10 billion.

F-17

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFl OPERATIONS

Current Business Plan

From November 18, 2013 until July 18, 2014 Bitzio, Inc. served as the exclusive worldwide distributor for E-motion Apparel, Inc. E-motion Apparel is a women’s contemporary brand specializing in the resort-wear market. E-motion represents equal parts fashion, function and wearable art. E-motion apparel is every daywear for every woman. E-motion is a modern take on tie-dye to create comfortable, dynamic casual wear for today’s active lifestyle. The brand’s product line incudes maxi dresses, mini dresses, skirts, tops and pants in both hand tie-dye patterns and solid colors. The brand currently uses mainly one fabric manufactured both domestically and overseas. The styles are made with the intention to appeal to most demographics from women in their 20s to women into 60s. The fabric, styles and hand tie-dyed methods are what differentiate this brand from other similar brands in the market. The brand will market its production through traditional channels such as trade shows, sales representatives, online marketing and social media. The product is manufactured primarily locally and shipped from our local facilities. E-motion Apparel is currently in high-end boutiques and resorts across the country and expanding both domestically and internationally.

During February 2014 the Company completed its first acquisition, taking control of the Cleo VII brand.

On July 16, 2014, we entered into a sales purchase agreement to acquire 100% of the outstanding shares of Lexi Luu Designs. Bitzio paid 500,000,000 restricted commons shares for this acquisition. 300,000 shares valued $0.0014, the market price of the Company’s stock on the day of acquisition, or $420,000, was the consideration given. The other 200,000 shares, or $280,000 were recorded as pre-paid compensation per the guidance at ASC 805-10-55-25, as they are considered compensation for continuing employment of Mr. Blanchette. The value of the shares will be amortized over the service period of approximately 20 months. Lexi Luu shareholders are able to earn an additional $300,000 in restricted common shares over the course of years in an earn out upon hitting certain revenue benchmarks. The Company recorded an earnout contingent liability of $87,000 as part of the acquisition. We accounted for the transaction as a business combination. Of the purchase price paid as of July 16, 2014 ($183,629) was allocated among the assets and liabilities and the difference was assigned to intangible assets.

On July 18, 2014, we entered into a sales purchase agreement to acquire 100% of the outstanding shares of E-motion Apparel. Designs. Bitzio paid 350,000,000 restricted commons shares for this acquisition. All 350,000 shares, or $455,000 were recorded as pre-paid compensation per the guidance at ASC 805-10-55-25, as they are considered compensation for continuing employment of Ms. Brassington, Ms. Cunningham and Ms. Brito. The value of the shares will be amortized over the service period of approximately 20 months. E-motion Apparel shareholders are able to earn an additional $300,000 in restricted common shares over the course of years in an earn out upon hitting certain revenue benchmarks. The Company recorded an earnout contingent liability of $48,000 as part of the acquisition. We accounted for the transaction as a business combination. Of the purchase price paid as of July 18, 2014 ($26,235) was allocated among the assets and liabilities and the difference was assigned to intangible assets. This License Agreement between Bitzio and E-motion Apparel was cancelled on July 18, 2014 and was replaced with the sales purchase agreement.

On February 26, 2015, the Company entered into and closed under a securities purchase agreement to acquire 100% of all outstanding shares of Skipjack Dive and Dancewear, Inc., in exchange for a 2% subordinate secured term note in the aggregate principal amount of $100,000. The note has a maturity date of September 30, 2015, and is convertible at the rate of $0.10 per share into 1,000,000 shares of common stock of the Company.

On March 3, 2015, the Company entered into and closed under a securities purchase agreement to acquire 100% of all outstanding shares of Punkz Gear, Inc., in exchange for a 2% subordinate secured term note in the aggregate principal amount of $200,000. The note has a maturity date of September 30, 2015, and is convertible at the rate of $0.10 per share into 2,000,000 shares of common stock of the Company.

The financial statements included in this report reflect the results of Skipjack and Punkz Gear post acquisition.

Going Concern

As a result of our financial condition, our independent auditor has expressed in its opinion on our financial statements of December 31, 2014 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.

Results of Operations

Revenues

For the three months ended March 31, 2015, we had revenues of $125,449, compared to $26,703 for the three months ended March 31, 2014. Sales grew in 2015, as a result of the acquisitions of described above.

The following table shows the contribution to revenue of our subsidiaries:

	Q1 2015 Revenue		% of Total Revenue
E-Motion Apparel	$	30,316		24	%
Lexi Luu Designs	$	85,995		68	%
Cleo VII	$	-		-	%
Skipjack	$	3,331		3	%
Punkz Gear	$	5,807		5	%

Cost of Revenue

For the three months ended March 31, 2015, our cost of revenue was $63,519, compared to $0 for the three months ended March 31, 2014. Gross profit was $61,930 and $26,703 for the three months ended March 31, 2015 and 2014, respectively.

Operating Expenses

The primary component of our operating expenses for the three months ended March 31, 2015 consisted of general and administrative expenses of $368,732. During the three months ended March 31, 2014, our general and administrative expenses totaled $132,698. General and administrative expenses are increased by $236,034 due to increased sale and marking cost, management salaries and expense related to newly acquired subsidiaries.

The remainder of our operating expenses for the three months ended March 31, 2015 consisted of professional fees of $60,521. The primary components of professional fees during three months ended March 31, 2015, were audit and accounting fees of $43,000, and consulting fees of $7,250. During the three months ended March 31, 2014, our professional fees totaled $161,705. Professional fees fell year-to-year due to the change in our business plan and management practices.

Loss from Operations

Due to our significant increase in general and administrative expenses, our loss from operations increased from $267,700 for the three months ended March 31, 2014 to $367,323 for the three months ended March 31, 2015.

Other Expense

During the three months ended March 31, 2015 we incurred interest charges of $355,125 as a result of financing transactions during the period. Our interest expense for the three months ended March 31, 2014 was $257,331.

We accounted for our convertible debt in accordance with ASC 815, Derivatives and Hedging , as the conversion feature embedded in the convertible debentures could result in the note principal and related accrued interest being converted to a variable number of our common shares. The conversion feature on these debentures is variable and based on trailing market prices. It therefore contains an embedded derivative. The fair value of the conversion feature was calculated when the debentures were issued, and we recorded a derivative liability for the calculated value. The conversion liability is valued at the end of each reporting period and results in a gain or loss for the change in fair value. Due to the volatile nature of our stock, the change in the derivative liability and the resulting gain or loss will usually be material to our results. During the three months ended March 31, 2015, we recorded a gain of $2,821,725, as the value of our derivative liabilities decreased by that amount.

During the three months ended March 31, 2015 we incurred foreign currency transaction gain of $19,992, compared to $43 during the three months ended March 31, 2014. We also incurred loss on extinguishment of debt of $946,682 and $2,850 for the three months ended March 31, 2015 and 2014, respectively.

We acquired a 51% ownership interest in Cleo VII, Inc. The net loss attributable to non-controlling interest of $7,350 and $5,194 reflects operations in Cleo VII, Inc. attributable to the non-controlling interest holder for the three months ended March 31, 2015 and 2014, respectively.

Net Loss

As a result of the foregoing, during the three months ended March 31, 2015, we recorded a net income of $1,179,937 compared to a net loss $1,341,508 for the three months ended March 31, 2014.

Liquidity and Capital Resources

Our principal needs for liquidity have been to fund operating losses, working capital requirements, acquisitions, and debt service. Unfortunately, at March 31, 2015 we had low liquidity, with current assets consisting of $19,272 in cash, $456,203 in prepaid expenses, $223,077 in inventory, and $9,714 in accounts receivable. 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. Accordingly, we will be working aggressively to secure sources of financing.

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 seek equity and/or debt financing. However management cannot provide any assurances that we will be successful in accomplishing any of our plans.

Cash Used in Operations

Our net cash used in continuing operating activities was $68,849 for the three months ended March 31, 2015, compared to $119,130 for the three months ended March 31, 2014.

Cash Used in Investing Activities

Our net cash used by investing activities was $0 for the three months ended March 31, 2015, compared to $53,079 for the three months ended March 31, 2014.

Cash Provided by Financing Activities

Our net cash provided by financing activities was $66,263 for the three months ended March 31, 2015, compared to $169,700 for the three months ended March 31, 2014. For the three months ended March 31, 2015, our cash provided by financing activities consisted primarily of proceed from convertible notes payable of $75,000.

Contractual obligations and other commitments

The following table summarized our contractual obligations as of March 31, 2015, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

			Payments due by period
	Total		Less than 1 Year		1-2 Years	3-4 Years		5+ Years
Related party debts	$	612,660	$	612,660	$-	$	-	$	-
Notes payable		313,254		313,254	-		-		-
Convertible notes		1,096,734		1,096,734	-		-		-
Total	$	2,022,648	$	2,022,648	$-	$	-	$	-

Off-balance sheet arrangements

As of March 31, 2015, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, or capital resources.

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.

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, as of March 31, 2015, 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. The evaluation disclosed the following material weaknesses in our disclosure controls and procedures:

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 as of the year ending March 31, 2014. 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.

3. We outsource the bookeeping operations of our company. Because we have no bookkeeping staff, we outsource most of the basic accounting functions of our Company to an independent consultant. This consultant is self-directed, and is not directly answerable to the Company’s management. This is a material weakness because it could result in a disjunction between the accounting policies adopted by our Board of Directors and the accounting practices applied by the consultant.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2015, our disclosure controls and procedures were not effective.

Changes in Internal Control over Financial Reporting

No change in our system of internal control over financial reporting occurred during the period covered by this report, the three months ended March 31, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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.

ITEM 1A – RISK FACTORS.

There have been no material changes from the risk factors included in the Annual Report on Form 10-K for the year ended December 31, 2014.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unless otherwise noted, the issuances noted below are all considered exempt from registration by reason of Section 4(a)(2) of the Securities Act of 1933, as amended.

During the three months ended March 31, 2015 the Company issued 1,351,750,001 shares in conversion of notes payable of $1,237,644.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 – OTHER INFORMATION

None.

ITEM 6 – EXHIBITS

The following exhibits are filed as part of this quarterly report on Form 10-Q:

Exhibit No.		Description

31.1		Rule 13a-14(a) Certification - CEO*

31.2		Rule 13a-14(a) Certification - CFO*

32.1		Rule 13a-14(b) Certification - CEO*

32.2		Rule 13a-14(b) Certification - CFO*

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**

*Filed Herewith

** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished“ and not “filed“.

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: May 20, 2015	By:	/s/ Hubert Blanchette
	Name:	Hubert Blanchette
	Its:	Chief Executive Officer

Bitzio, Inc. - FORM 10-Q - May 20, 2015

Attached files

Bitzio, Inc. Reports